Sectoral funds see 97% fall in March 2025 inflows

It was a rough March for sectoral and thematic funds.

According to AMFI's (Association of Mutual Funds in India) monthly data for March, net inflows into this category dropped by a staggering 97 per cent in March to just Rs 170 crore, compared to Rs 5,712 crore in February.

What caused the decline?

The absence of new fund offers (NFOs) in March likely contributed to this fall. March saw just one launch in this category, the Motilal Oswal Active Momentum Fund. That, coupled with heightened market volatility, appears to have dampened investor appetite for these higher-risk investment vehicles.

Another possible reason is profit booking. Several sectoral funds recovered in March after prior corrections, prompting some investors to lock in gains. Money withdrawn from these funds surged 55 per cent, from Rs 5,752 crore in February to Rs 8,920 crore in March.

What about inflows in other equity categories?

While sectoral and thematic funds lost steam, small- and mid-cap funds continued to attract steady investor interest.

Small-cap funds garnered Rs 4,092 crore in net inflows, up 10 per cent from February.
Mid-cap funds saw Rs 3,439 crore inflows in March, a 1 per cent rise from last month.

In contrast, large-cap funds saw net inflows decline by 13 per cent to Rs 2,479 crore, suggesting a shift in investor preference toward more diversified or flexible fund categories.

• Flexi-cap funds saw Rs 5,615 crore in net inflows—up 10 per cent from February.
  
• Multi-cap funds attracted Rs 2,753 crore, 9 per cent higher than in February.

Tax-saving fund inflows hit multi-year low

March typically sees a spike in inflows into Equity Linked Saving Schemes (ELSS) as investors rush to make last-minute tax-saving investments. But not this time.

ELSS funds recorded their lowest March inflows of Rs 735 crore in several years. A likely reason is the growing popularity of the new tax regime, which does not offer deductions under Section 80C, thereby reducing the appeal of ELSS.

Debt and hybrid funds face challenges

Debt mutual funds witnessed heavy outflows of over Rs 2.02 lakh crore in March. This was largely due to financial year-end withdrawals from liquid funds.

Hybrid funds, too, recorded net outflows of Rs 947 crore. This was led by withdrawals from arbitrage and conservative hybrid funds.

However, some hybrid subcategories maintained positive momentum in March:

• Dynamic asset allocation funds: a Rs 776 crore net inflow
  
• Multi-asset allocation funds: a Rs 1,670 crore net inflow
  
• Aggressive hybrid funds (along with a few balanced hybrid funds): a Rs 294 crore net inflow

SIP flows dip marginally

Systematic investment plan (SIP) contributions softened slightly to Rs 25,926 crore in March, down from Rs 25,999 crore in February. While this month-on-month dip is minor, SIP collections continue to show healthy year-on-year growth, indicating sustained retail participation.

Also read: SEBI loosens the screws on SIFs