India’s Mutual Fund Industry Hits a Record High in January 2025: AUM Surpasses ₹67.25 Lakh Crore

The Indian mutual fund industry continued its remarkable growth trajectory in January 2025, with total  assets under management (AUM) reaching an all-time high of ₹67.25 lakh crore. This marks a 0.48%  increase from December 2024 and an impressive 27.52% growth year-on-year. Despite ongoing  market fluctuations, investors remain committed to mutual fund investments, ensuring steady inflows  across various fund categories. Let’s dive deeper into the key trends shaping India’s mutual fund  industry.

Equity mutual funds continued to attract significant investor interest in January, with net inflows of  ₹39,688 crore. This was the fourth-highest monthly inflow ever recorded, demonstrating investor  confidence in the long-term growth potential of Indian equities. However, due to market corrections,  the total AUM for equity-oriented funds declined by 3.6% to ₹29.47 lakh crore.  

Sectoral and Mid/Small-Cap Funds Dominate Inflows  

– Sectoral/thematic funds led the way, attracting the highest inflows within equity-oriented funds.  

– Mid-cap and small-cap funds saw their highest-ever monthly inflows, reinforcing the growing  investor appetite for these high-growth segments.  

– Large-cap and flexi-cap funds also saw strong inflows, ranking second-highest in their history.  

– New Fund Offerings (NFOs) continued to be a major driver, with small-cap NFOs raising ₹1,040  crore and sectoral/thematic NFOs mobilising ₹2,838 crore.  

Thematic/sectoral funds continue to attract the highest inflows amongst all equity schemes. Nov and  Jan have seen the inflows dip below Rs 10,000 crs whereas it was more than 13,000 crs in the three  months each ending Oct 2024. Thematic NFOs in Jan brought in 2838 crores.  

Market Impact: Equity AUM Faces Pressure  

Despite strong inflows, the equity AUM experienced a decline of 3.62% due to mark-to-market losses  as the benchmark indices, Nifty 50 and BSE Sensex, dropped by 0.45% and 0.78%, respectively.  Nonetheless, domestic institutional investors (DIIs) played a stabilising role by continuing their equity  purchases, mitigating the impact of foreign institutional outflows.

Debt mutual funds saw their AUM climb to an all-time high of ₹17.06 lakh crore, growing 8.9% on a  monthly basis. January also saw net inflows of ₹1.29 lakh crore into debt funds, reversing the  significant net outflows of ₹1.27 lakh crore seen in December 2024. As usual, the first month of the  new quarter saw monies that had gone out in the previous month come back again. The seven day exit load now levied by all mutual funds needs to be reviewed as it may not have worked in changing the  nature of quarterly inflows and outflows.

1. Liquid and Money Market Funds Lead Inflows  

 – Liquid funds recorded a staggering inflow of ₹91,593 crore, accounting for 71% of total debt fund  inflows.  

 – Money market funds also performed well, receiving ₹21,916 crore in inflows.  

2. Declining Bond Yields Attract Investors  

 – The yield on the 10-year government bond fell from 6.76% in December 2024 to 6.69% in January  2025, making fixed-income investments more attractive. Though, declining yields can lead to better  returns, funds which can take advantage of declining yields such as gilt funds with 10 year constant  duration, medium and long term duration funds, credit risk funds, etc have seen outflows. Either very  few people are expecting interest rates to decline else they are allocated to equity and hence not  looking at a kicker from debt funds.  

3. Short-Term Funds Dominate  

 – Overnight funds, liquid funds, and money market funds saw the highest month-on-month growth,  at 26.3%, 20.4%, and 10.2%, respectively.  

 – Investors preferred shorter-duration funds as they offered better liquidity and lower risk in a  volatile environment. 

Hybrid funds witnessed net inflows of ₹8,768 crore in January, more than doubling from ₹4,370 crore  in December 2024. While the category’s total AUM declined slightly by 0.14% to ₹8.75 lakh crore due  to market fluctuations, investor interest in hybrid strategies remained strong.  

 Arbitrage Funds Take the Lead  

– Arbitrage funds alone accounted for nearly half of hybrid fund inflows, attracting ₹4,292 crore in  January.  

– Their AUM grew by 2.16% month-on-month to cross ₹2 lakh crore. Arbitrage fund inflows turned  hugely positive as they were negative in three out of the last four months. Have investors booked  some profits or are they parking their lumps funds in Arbitrage to move to equities later?  

Multi-Asset Allocation Funds Surge 

– Multi-asset allocation funds have grown nearly fourfold over the past three years, reflecting  investors’ increasing preference for diversified portfolios. This is a good sign as these funds are  inherently less volatile as they have a mix of three asset classes mainly equity, debt and gold which 

have low positive correlation amongst them. Investors should move from debt to hybrid and then to  equity schemes. Multi asset funds are a great way to progress for cautious investors. In the same  breath, conservative hybrid funds have seen negative flows for the last three months. Are all the new  investors directly coming into equities?

Passive investment strategies continued their strong run, with inflows of ₹10,255 crore in January. This  marked the 51st consecutive month of positive inflows into passive funds.  

 Gold ETFs Hit Record Inflows  

– Gold ETFs saw their highest-ever monthly inflow of ₹3,751 crore as investors turned to safe-haven  assets amid market uncertainty.  

– The depreciating Indian rupee and global economic concerns contributed to heightened interest in  gold-backed instruments.  

 Index Funds Continue to Attract Investors  

– Index funds accounted for the largest inflows within the passive category, receiving ₹5,255 crore in  fresh investments.  

– The AUM of index funds grew to ₹2.76 lakh crore, reflecting increased adoption of low-cost, passive  investing strategies.

Systematic Investment Plans (SIPs) maintained their steady growth, with contributions reaching  ₹26,400 crore in January, up 40.14% from ₹18,838 crore a year ago. The total SIP AUM now stands at  ₹13.20 lakh crore, accounting for nearly 20% of the overall mutual fund industry assets.  

This growth underscores investors’ confidence in a disciplined, long-term approach to wealth creation,  even amid short-term market turbulence. Its good that the market volatility has not reduced SIP  inflows. SIP inflows probably stay for a longer term than lumps sum inflows.

January also saw a record increase in the number of mutual fund folios, with 41.96 lakh new accounts  added. The total folio count now stands at 22.92 crore, up 1.86% from December.  

– Equity-oriented folios led the expansion, contributing over 30.78 lakh new accounts.  – Passive funds accounted for 9.43 lakh new folios, driven by index and ETF investments. 

The sustained folio growth highlights increasing retail participation and a broader investor base in  India’s mutual fund ecosystem. As we had mentioned in our earlier blogs, there is hardly any new  folios being created in debt schemes. The entire debt mutual fund ecosystem is tailored towards  corporates and UHNIs.  

Outlook: Strong Flows Expected Despite Market Fluctuations  

The Indian mutual fund industry continues to show resilience and sustained growth. The steady rise in  AUM, robust SIP inflows, and increasing investor participation signal strong confidence in the market.  While short-term volatility may persist, long-term prospects remain bright, particularly for equity,  passive, and hybrid funds.  

 Key Takeaways:  

– Mutual fund AUM reached ₹67.25 lakh crore, growing 27.52% year-on-year.  

– Equity funds saw ₹39,688 crore in inflows, despite market corrections.  

– Debt fund AUM hit a record ₹17.06 lakh crore, benefiting from falling bond yields.  

– SIP contributions remained steady at ₹26,400 crore, highlighting retail investor confidence.  – Gold ETFs recorded their highest-ever inflows at ₹3,751 crore.  

As we move further into 2025, mutual funds continue to offer attractive investment opportunities,  reinforcing their role as a key pillar of wealth creation for Indian investors.  

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents  carefully before investing.

To navigate the vast array of funds: 

1. Start with Asset Allocation: Define equity, debt, and gold proportions. A typical mix: 60%  large-cap, 25% mid-cap, 15% small-cap. Given the recent run up and correction in mid and  small caps, we advise sticking to large caps till there is a higher correction in this part of the  market.  
2. Diversify Wisely: Limit to ~10 schemes across categories and not more than 1-2 schemes  across one category.  
3. Key Metrics: Analyze 3-5 year performance, volatility, portfolio turnover, and fund manager  consistency. 
4. Review Regularly: Annual or semi-annual reviews are essential. 

For simplicity, leverage mutual fund ratings by CRISIL, ICRA, etc., favouring 4-star schemes.

EquiZen, a registered mutual fund and PMS distributor, offers personalised financial solutions with a  focus on safety and transparency. We aim to assist you to achieve financial freedom, the freedom to do  what you want and achieve your dreams. We do not push financial products but believe utilising them  judiciously to meet your needs. Learn more at www.equizen.in or contact us via +91 9820605203 or sanjay@equizen.in.