The Indian mutual fund industry continues to witness dynamic shifts, reflecting changing investor sentiments and market conditions. In May 2025, equity mutual funds attracted substantial interest across multiple categories, even though the overall net inflow remained lower compared to April 2025. As of 31st May 2025, the total assets under management (AUM) of the mutual fund industry reached approximately ₹72.2 lakh crore, indicating the sector’s resilience and depth. Among the various segments, Other Equity ETFs, Flexi Cap Funds, Small Cap Funds, Equity Index Funds, and Multi Cap Funds stood out, registering the highest net inflows for the month.
Let’s explore in detail the top 5 equity mutual fund categories that commanded maximum net inflows in May 2025, analyzing their performance, underlying reasons for investor interest, and broader market trends.
1. Other Equity ETFs: Dominating the Inflow Charts
Overview
Other Equity ETFs led the equity mutual fund space in May 2025 with net inflows of ₹4,227 crore. The category maintained a strong lead, supported by investor preference for low-cost, diversified investment vehicles. The category reported 171.9 lakh folios, with a closing AUM of ₹7,19,108 crore.
Factors Driving Inflows
Low Expense Ratios
Equity ETFs offer one of the lowest expense ratios among mutual fund products. Investors seeking cost efficiency and broad market exposure favored these funds, especially during market volatility.
Institutional Participation
Institutional investors, including pension funds, insurance companies, and foreign portfolio investors (FPIs), significantly contributed to the rise in ETF investments. They capitalized on ETFs for efficient portfolio management and passive indexing strategies.
Market Volatility
The global and domestic markets displayed considerable volatility in May 2025 due to macroeconomic uncertainties. ETFs provided a stable and transparent investment option during such times, attracting conservative investors who aimed to avoid actively managed fund risks.
Government and Regulatory Push
Regulatory encouragement towards passive investing further supported the ETF segment. The Indian government’s disinvestment programs also channeled funds into ETFs, especially through CPSE ETFs.
SIP Contributions
Systematic Investment Plans (SIPs) into ETFs gained popularity among retail investors, providing them with an affordable route to enter equity markets regularly.
Future Outlook
The momentum in Other Equity ETFs is likely to sustain, with growing awareness about passive investing and the rise of robo-advisory platforms. The increasing participation of millennials and first-time investors, who prefer simple and transparent products, will continue fueling this segment.
2. Flexi Cap Funds: Maintaining Steady Popularity
Overview
Flexi Cap Funds secured the second position, garnering net inflows of ₹3,841 crore. The category recorded 185.1 lakh folios with a closing AUM of ₹4,71,974 crore.
Factors Driving Inflows
Portfolio Flexibility
Flexi Cap Funds can invest across large-cap, mid-cap, and small-cap stocks without any restriction. This flexibility allowed fund managers to dynamically shift allocations based on market conditions, providing better risk-adjusted returns.
Market Diversification
Investors preferred Flexi Cap Funds to achieve diversification across different market capitalizations. Amid economic uncertainty, this diversification minimized risks while capturing upside potential.
Strong Fund Performance
Several Flexi Cap Funds outperformed their benchmarks over one, three, and five-year periods. Consistent fund performance enhanced investor confidence, driving fresh inflows.
Professional Fund Management
Experienced fund managers in this category skillfully navigated sectoral rotations, capitalizing on emerging themes like artificial intelligence, green energy, healthcare innovation, and financial technology.
Attractive Entry Points
Market corrections during the first half of May 2025 offered attractive entry points for long-term investors, resulting in significant SIP and lump sum contributions to Flexi Cap Funds.
Future Outlook
Flexi Cap Funds are expected to maintain their appeal as markets continue to evolve. Their adaptability will remain a key factor, especially as India’s economy experiences sectoral shifts and global capital flows influence domestic equities.
3. Small Cap Funds: High-Risk, High-Reward Attraction
Overview
Small Cap Funds attracted net inflows of ₹3,214 crore in May 2025, with 252.5 lakh folios and a closing AUM of ₹3,36,005 crore. Despite their inherent volatility, investors displayed strong appetite for small-cap opportunities.
Factors Driving Inflows
Long-Term Growth Potential
Small cap companies possess significant growth potential due to their scalability, niche market presence, and untapped opportunities. Investors targeting wealth creation over extended horizons found these funds compelling.
Attractive Valuations
After facing corrections in previous months, several small-cap stocks traded at attractive valuations. Value-conscious investors entered the space, aiming to capitalize on potential rebounds.
Domestic Consumption Story
India’s robust domestic consumption, fueled by rising disposable incomes and rural demand, boosted prospects for several small-cap businesses catering to local markets.
SIP Discipline
Investors continued systematic contributions through SIPs into Small Cap Funds, focusing on rupee-cost averaging to mitigate market timing risks.
Professional Fund Management
Experienced fund managers curated well-researched portfolios, filtering fundamentally strong businesses with high growth trajectories and sound financials.
Risks and Considerations
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Small Cap Funds remain highly sensitive to market corrections.
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Liquidity concerns may emerge during sharp market downturns.
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Investors need to align their risk appetite and investment horizon before investing heavily in this category.
Future Outlook
As India’s economy progresses towards higher GDP growth rates, select small-cap companies may emerge as tomorrow’s market leaders. This category will likely remain favored by aggressive investors who understand and accept higher volatility.
4. Equity Index Funds: Riding the Passive Wave
Overview
Equity Index Funds secured ₹3,010 crore in net inflows, with 129.4 lakh folios and a closing AUM of ₹1,87,317 crore. Investors continued embracing passive strategies, making Index Funds a prominent choice.
Factors Driving Inflows
Cost Efficiency
Equity Index Funds operate with significantly lower expense ratios compared to actively managed funds. This appeals to fee-conscious investors aiming to replicate market returns.
Transparent Performance
Index Funds deliver returns closely aligned with their benchmark indices. Investors seeking predictable, benchmark-matching returns preferred these products.
Regulatory Support
SEBI’s investor education efforts and financial literacy programs emphasized the importance of low-cost passive investing, boosting awareness about Index Funds.
Global Best Practices
As global markets embrace index investing, Indian investors increasingly align their portfolios with global standards. The growing popularity of Nifty 50 and Sensex index funds reflects this shift.
Portfolio Stability
During periods of market uncertainty, investors chose Index Funds for their simplicity and clarity. Unlike actively managed funds, Index Funds avoid stock selection risks.
Future Outlook
The future of Equity Index Funds appears bright as market participants steadily adopt passive investing principles. As India’s index ecosystem expands with thematic and sectoral indices, more opportunities will arise for diversified passive products.
5. Multi Cap Funds: Balanced Approach Gains Traction
Overview
Multi Cap Funds rounded off the top five, attracting net inflows of ₹2,999 crore. The category maintained 98.3 lakh folios with a closing AUM of ₹1,95,160 crore.
Factors Driving Inflows
Balanced Allocation
SEBI’s mandate requires Multi Cap Funds to allocate a minimum of 25% each to large-cap, mid-cap, and small-cap stocks. This structure ensures balanced exposure across market segments, appealing to investors seeking diversification with stability.
Market Volatility Protection
In a volatile market environment, Multi Cap Funds provided a hedge by distributing investments across different capitalization tiers, reducing portfolio concentration risks.
Attractive Performance
Many Multi Cap Funds delivered steady returns, outperforming broader benchmarks by capturing upside across diverse sectors.
Investor Education
Fund houses actively promoted Multi Cap Funds as all-weather investment solutions during investor education campaigns. This enhanced investor awareness and confidence.
Strategic Rebalancing
The in-built asset allocation allowed fund managers to adjust weightages within the regulatory framework, optimizing portfolios based on prevailing market opportunities.
Future Outlook
Multi Cap Funds are likely to continue attracting investors who prefer an all-in-one diversified solution. Their regulated allocation discipline offers a structured approach to market participation, balancing growth potential with risk control.
Broader Market Context: May 2025
Lower Net Inflows Compared to April 2025
Although equity mutual funds recorded healthy inflows in May 2025, the aggregate net inflow slightly declined on a month-on-month basis. Several contributing factors shaped this outcome:
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Global economic uncertainties, including US Federal Reserve interest rate expectations and geopolitical developments.
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Profit booking by investors following significant market rallies in April 2025.
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Caution among institutional investors ahead of key policy announcements and domestic events.
AUM Growth Driven by Existing Investments
Despite lower net inflows, total industry AUM stood at a robust ₹72.2 lakh crore as on 31st May 2025. This growth primarily stemmed from mark-to-market gains on existing portfolios, reflecting strong equity market performance during the period.
Investor Maturity and SIP Momentum
Indian investors exhibited growing maturity by sticking to disciplined investing through SIPs. The steady monthly SIP inflows acted as a stabilizing force, cushioning overall fund flows even during periods of market nervousness.
Key Trends Shaping Equity Mutual Fund Industry
Rise of Passive Investing
Passive investing through ETFs and Index Funds continued gaining momentum. Investors increasingly appreciated the simplicity, transparency, and cost-efficiency of these products.
Shift Toward Diversification
Funds like Flexi Cap and Multi Cap attracted attention due to their built-in diversification capabilities. Investors opted for such funds to balance market volatility with growth opportunities.
Retail Participation Surge
Retail investors expanded their presence in the mutual fund landscape, supported by digital platforms, investor education initiatives, and simplified onboarding processes.
Growing Sophistication Among Investors
Indian investors displayed higher awareness about market cycles, risk profiles, and fund categories. This led to more informed investment decisions and strategic asset allocations.
Conclusion
The mutual fund industry witnessed significant activity across various equity fund categories in May 2025. Other Equity ETFs topped the charts, followed by Flexi Cap Funds, Small Cap Funds, Equity Index Funds, and Multi Cap Funds. Each category offered unique value propositions, attracting diverse investor profiles based on their risk appetite, investment horizon, and market outlook.
As India’s financial markets mature and investor sophistication rises, mutual fund categories will continue evolving to meet emerging needs. Investors, empowered by knowledge and technology, will drive sustained growth in the equity mutual fund industry, making it a cornerstone of long-term wealth creation in the country.
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