Investors buy the dip: Equity mutual fund inflows surge 38% in March 2026

Despite continued geopolitical headwinds and global risk-off sentiment, domestic investors used the market correction as an opportunity to deploy capital

Small cap and mid cap funds have also seen a sizeable growth as investors seem to prefer them due to their potential to offer attractive wealth creation opportunity

Sunainaa Chadha NEW DELHI

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Even as markets turned volatile and headlines were dominated by global tensions, Indian investors did something telling—they put more money into equities.

Equity mutual funds saw net inflows of ₹40,450 crore in March 2026, a sharp jump from ₹25,978 crore in February, marking the highest inflow since July 2025. The surge came despite a market correction, suggesting that investors are increasingly viewing dips as opportunities rather than reasons to exit.

" The surge in inflows reflects sustained retail engagement through SIP contributions, year-end portfolio allocations, and investors using recent market corrections as an opportunity to deploy incremental capital into equities," said Himanshu Srivastava, Principal Research, Morningstar Investment Research India.

Why investors poured money despite volatility

March was not a calm month for markets. Escalating geopolitical tensions triggered volatility and corrections across equities.

But instead of pulling back, investors leaned in.

Indian equity markets witnessed a notable correction during the month amid heightened geopolitical tensions stemming from the escalating conflict in the Middle East involving the US and Israel on one side and Iran on the other.

"The volatility triggered by these developments created attractive entry points for long-term investors, prompting many to increase allocations through mutual funds. As a result, the correction appears to have been viewed more as a buying opportunity rather than a trigger for risk aversion, leading to a meaningful pickup in equity inflows during the month," added Srivastava.

" Inflows into equity mutual funds grew 61.27 per cent on a year-on-year basis at Rs 40,450.26 crore in March 2026. On a month-on-month basis, the inflows have increased by 38.04 per cent from Rs 29,303.34 crore in February this year. A significant chunk of these inflows is coming in through the SIP route and being invested by retail investors. March typically witnesses a surge in outflows due to higher redemptions, particularly from debt mutual funds, as companies redeem money from liquid funds to meet year-end commitments. However, this is just a temporary blip and industry is likely to witness a surge in inflows in the coming months ," said Ankur Punj, MD & Business Head, Equirus Wealth.

Mid- and small-caps see strong comeback

The biggest action was in the mid- and small-cap segments—traditionally seen as higher risk.

Mid-cap funds attracted ₹6,064 crore

Small-cap funds saw ₹6,264 crore

Both categories saw a sharp increase from February.

This is significant because these segments had seen valuation concerns earlier. The recent correction seems to have made them attractive again.

Investors are still betting on growth potential, even if volatility remains high.

" This suggests that investors continue to maintain a constructive outlook toward the earnings growth potential of mid- and small-sized companies, despite earlier valuation concerns and intermittent volatility in these segments. Also both the segments witnessed meaningful correction providing investors a good opportunity to invest," said Srivastava.

"Small and Mid Cap funds surged 61% and 51% respectively, confirming investors are treating every correction in the SMID space as a buying opportunity. The consistency across both categories in the last two years also points to SIP discipline rather than just lump-sum chasing. Domestic investors are the new market anchors— DIIs are no longer just a buffer; they’re actively setting the floor in volatile sessions," said Suranjana Borthakur, Head of Distribution & Strategic Alliances, Mirae Asset Investment Managers (India).

Large-cap funds also gain traction

At the same time, investors did not ignore stability.

Large-cap fund inflows rose to ₹2,998 crore in March 2026 from ₹2,112 crore in Feb 2026.

This suggests a more balanced approach:

Growth (mid/small caps) + Stability (large caps)

With global uncertainty still in play, many investors appear to be hedging their bets across segments.

Flexi-cap funds remain the top choice

Flexi-cap funds continued to dominate inflows:

₹10,054 crore in March

The category continues to benefit from investors’ preference for diversified strategies that provide flexibility to navigate changing market conditions by allocating across market capitalizations.

The category continues to benefit from investors’ preference for diversified strategies that provide flexibility to navigate changing market conditions by allocating across market capitalizations.

Where investors pulled money out

Not all categories saw inflows.

Dividend yield funds

ELSS (tax-saving funds)

These two categories recorded net outflows, likely reflecting:

Profit booking

Lower urgency for tax-saving investments at year-end

NFOs

The NFO activity was rather moderate as eight funds were launched in March, which cumulatively garnered Rs 1,947 crore. Of the eight funds, there was one mid cap fund, two small cap strategies, four were from the thematic category and one was a flexicap fund.

The assets of the equity-oriented category at the end of Mach 2026 stood at Rs 31.98 trillion, which was lower than Rs 35.39 trillion recorded in February 2026. The drop in the asset base could be attributed to the recent market correction.

Hybrid schemes, however, reported net outflows of nearly ₹16,500 crore, largely driven by Arbitrage Funds, which alone saw outflows of around ₹21,000 crore.

In contrast, Multi-Asset Allocation Funds recorded inflows of over ₹5,000 crore, indicating a preference for diversified asset allocation strategies amid heightened global uncertainty.

Other ETF categories witnessed strong inflows, largely supported by sustained equity-related investments. In contrast, inflows into Gold ETFs moderated to around ₹2,000 crore in March, lower than levels seen in previous months, probably as relative valuations became more favourable toward equities compared with gold.

"Overall, the March flow trend indicates that domestic investor participation in equities remains structurally strong, with allocations increasingly reflecting a combination of growth-oriented positioning in mid- and small-cap segments along with continued preference for diversified strategies such as flexi-cap funds. The sharp pickup in flows also underscores investors’ confidence in the long-term growth prospects of Indian equities despite near-term market fluctuations and global uncertainties," said Srivastava.

"Stepping back to the full year, FY26 will be remembered as the year India’s mutual fund investor matured. Sectoral and thematic funds which had pulled in ₹1.47 lakh crore in FY25 collapsed to ₹30,000 crore, an 80% fall that reflects the hangover from momentum-chasing. ELSS recorded its first-ever full-year net outflow, a structural shift with no reversal in sight given the new tax regime. Meanwhile, the categories that reward patience dominated: Flexi Cap crossed ₹89,000 crore for the year, Multi Asset Allocation doubled to ₹65,000 crore, and Gold ETFs went from ₹15,000 crore last year to ₹74,000 crore, a near 5x jump in a single year. Other ETFs crossed ₹1 lakh crore for the first time. SIPs held firm through every bout of volatility. FY26 wasn’t the loudest year for Indian mutual funds but it may have been the most consequential," added Borthakur.

Highlights:

Mutual Fund Industry’s Net AUM stands at ₹ 73,73,376.98 crores for the month of March 2026. Net AUM for the month of February 2026 was ₹ 82,02,956.35 crore

Mutual Fund Folios are at 27,39,34,259 as of March 2026 with 33.63 lakh net folios being added during the month. Folios as of February 2026 stood at 27,05,71,455.

Retail MF Folios (Equity + Hybrid + Solution Oriented Schemes) are at 20,82,98,532 for the month of March 2026 as against in 20,64,24,339 February 2026

Retail AUM (Equity + Hybrid + Solution Oriented Schemes) stood at ₹ 42,88,955 crores for March 2026

61st month of positive equity inflows, starting from March 2021

SIP assets stood at Rs. 15,10,942.99 crore in March 2026, accounting for 20.5% of the overall AUM

SIP contribution for March 2026 stood at ₹ 32,086.78 crores

The number of Contributing SIP accounts stood at in 9,71,85,691 in March 2026

SIF assets stood at Rs 10,620 crore in March 2026, marking a 9.4% on-month rise

The category recorded positive inflows of Rs 1,314 crore during the month primarily driven by hybrid investment strategies.

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First Published: Apr 10 2026 | 2:29 PM IST