Mutual funds' equity bets hit record ₹1 trillion amid March rout

Net equity investments by MFs stood at nearly ₹1.05 trillion (provisional figures as of March 30). The buying helped partially offset the impact of a ₹1.23 trillion pullout by foreign portfolio investors (FPIs) — the highest monthly selling by overseas investors, surpassing the previous peak of ₹92,000 crore recorded in October 2024.

Last month, the Nifty 50 index slumped 11 per cent, its steepest monthly decline since the Covid pandemic-led rout of March 2020.

The strong buying last month also pushed net MF deployment for FY26 past ₹5 trillion, surpassing the previous high of ₹4.7 trillion in FY25.

According to MF executives, the record buying was supported by a pick-up in lump-sum investments, as investors capitalised on the market correction. “March likely turned out one of the stronger months in the past two quarters, with both gross and net flows into equity schemes picking up meaningfully towards the end of the month. The improvement was driven by a recovery in lump-sum investments, as investors deployed cash amid the market correction, alongside a moderation in redemptions,” said Akhil Chaturvedi, executive director & chief business officer at Motilal Oswal Asset Management.

Apart from fresh inflows, MF equity investments are influenced by changes in equity allocation within hybrid funds and cash holdings in equity schemes. The equity exposure of hybrid funds, which has been rising over the past year, is expected to have increased further in March as valuations eased.

MFs have been emerging as a larger force in the equity market, driven by growing penetration and a rising systematic investment plan (SIP) book. Their rise has coincided with continued selling by FPIs.

"The rise of MFs has been driven by increasing financial awareness, digitisation, and rising per capita income, which is gradually shifting household savings towards financial assets. Sustained equity market performance over the years has further accelerated this shift, bringing more investors into MFs,” said Madhu Nair, chief executive officer at Union MF, adding that rising MF participation is providing stability to the domestic equity market.

However, equity MF investments lost some momentum in FY26. Inflows stood at about ₹3 trillion until February, nearly 27 per cent lower than the FY25 tally. A pick-up in commodity and hybrid fund inflows helped offset the slowdown in equity schemes.