The recent correction in the market has had some telling impact on the mutual fund industry. Not only have flows slowed down to 3-month lows but the small cap funds saw significant decline and the SIP registrations have come down drastically. This is as per the latest data shared by the Mutual Fund Association, AMFI. This data is particularly relevant for equity market investment as well as the Mutual Fund flows are closely linked with the equity market movement. Many industry observers have linked the recent correction in small and midcaps to redemption pressure in midcap and small cap funds.
According to Akhil Chaturvedi, Executive Director & Chief Business Officer, Motilal Oswal AMC, “”Continuous monthly market correction has led to slowdown of the sales for the first time in Feb, this could also be partially attributed to a truncated month. Allocations are being tilted towards Multi Asset Allocation, Large and Flexi categories. Investors are being cautious in allocations and may postpone or stagger in near future..”
Here is a quick look at the top takeaways from the February data and the broader implications-
#Big jump in SIP cancellation
The SIP Cancellation ratio shot up to 122% in February, meaning more cancellations than registered.The sharp uptick can be assessed if one compares the ratio in the last three months. The SIP Cancelled/Registered ratio stood at 79% in November, 2024; 83% in December 2024 and 109% in January 2025.
The New SIP registrations in February came in at 44.56 lakh. This is also significantly lower, down 16.4% from 3-month average and what’s even more worrying is that 54.7 lakh SIPs were discontinued. This resulted in net SIP reduction of 10.1 lakh, twice of last month However, like last month, the increase in discontinued accounts is attributed to reconciliation with exchanges and RTAs pertaining to 2024.
#Inflows to Smallcap funds at 3-month lows
However, the pain across the broader markets is well manifested in the declining flows in the smallcap funds as well. The inflows to this fund is down 23% from the 3-month average. When compared to January, the monthly inflows are down 35% to Rs 3,406 crore from Rs 5,147 crore. Meanwhile the February midcap fund inflows were at Rs 3,722 crore from Rs 5,720 crore in January, down 34% MoM.
It is interesting to note that the midcap and small stocks have been under severe pressure in February. In fact, if we assess the share price movement, the BSE Small Cap Index is down a whopping 21% so far in 2025 and BSE Midcap Index has slumped 16% in 2025. This according to many market observers has led to significant halting of SIPs and redemption as well in many of these mid and small cap funds.
#Active equity flows dip 26.3% MoM
The concern in the market and the cautious investor approach can be gauged even if one tracks the active equity flows. It is down 26% compared to January at Rs 32,700 crore. This is also a 3-month low. Overall, equity fund inflows slowed down to Rs 29,242 crore, 24.8% lower than the 3-month average. A look at the different fund categories indicated that thematic funds are dominating with Rs 5,711.58 crore net inflow. This can be also attributed to the launch of seven new sector/thematic funds in February.
Suranjana Borthakur, Head of Distribution & Strategic Alliances, Mirae Asset Investment Managers (India) highlighted that, “The SIP inflows have come down. I believe investors should continue their SIP flows as it is a great time to accumulate units. Inflows in most equity funds have also dipped, except in the focused fund category. Sectoral funds which saw disproportionately high inflows in previous months, saw flows coming down to around to Rs 5,700 crore in spite of seven NFOs in the category which ended up garnering somewhere around Rs 2,000 crore. Overall, NFO momentum has continued 29 new fund launches, collecting somewhere around 4,000 crores.”
#Debt funds clock net outflows
The Debt mutual funds recorded net outflow of Rs 6,525 crore in February. This is particularly striking after the funds clocked an inflow of Rs 1.28 lakh crore in January. This is another key highlight of the Mutual Fund industry action in February. According to Borthakur, “ELSS as a category usually sees a spike during Jan- March but this month’s flows have remained subdued after the Union Budget made the new tax regime attractive. However, we believe the category is still suitable for long term investing. Debt funds have seen outflows especially those with tenures below 1 year category. We continue to see inflow in gold ETFs as this is looked at as a safe haven during such volatile times.”