Indian mutual fund holdings in overseas equity securities increased by 37.5 per cent year-on-year to approximately '93,602 crore by March-end, according to RBI data. This growth is attributed to mark-to-market gains from a global market rally and heightened investor interest, with the US remaining the primary destination for these investments.
August 2026 witnessed a significant surge in India's primary market, with 21 mainboard initial public offerings (IPOs) raising approximately 21,000 crore, marking the highest monthly deal count of the year, even as benchmark indices experienced declines.
Smallcap funds have emerged as the primary beneficiaries of the systematic investment plan (SIP) wave in Indian mutual funds over the past five years, with their SIP assets surging to approximately 1.83 trillion by March 2026, a fivefold increase.
HDFC Bank's share in active mutual fund schemes has fallen to multi-year lows, despite overall MF ownership in the bank rising, as the stock faces weak performance, soft margins, and governance concerns.
'India is vulnerable to the West Asia crisis in three ways: Energy costs, the business Indian companies conduct in the region, and remittances from the Indian diaspora.'
Foreign portfolio investors (FPIs) significantly increased their buying in Indian equities during the first half of August, with financial services attracting the largest inflows, reversing previous outflows. The IT sector also continued to see strong interest from overseas investors, driven by a reassessment of valuations and the role of Indian IT firms in AI deployment.
Smallcap and midcap funds now account for nearly 30% of active equity MF folios, as stock-market gains revive investor appetite for high-growth segments.
'A favourable base, last year's policy measures, the carryover impact of a good monsoon and improving earnings should all help.'
Net inflows into smallcap funds surged 39 per cent M-o-M to a record Rs 7,768 crore, while midcap fund inflows rose marginally to Rs 6,192 crore.
Liquidity stress in smallcap funds has fallen to its lowest level since February 2024, with the average time to liquidate 50% of portfolios dropping to 27 days in June from a peak of 44.2 days in January 2026, driven by a sharp recovery in smallcap stocks and increased trading volumes.
'The market is currently neither cheap enough to be exciting about nor expensive enough to worry about.'
At Rs 4.07 trillion, gross inflows were just shy of the record Rs 4.34 trillion mobilised in H2 of 2024, making it the second half-yearly period in which inflows crossed Rs 4 trillion.
The change comes at a time when online MF distributors are increasingly moving investors from the SoA mode to demat holdings.
Investor interest in precious metal exchange-traded funds (ETFs) rebounded sharply in June, with silver ETFs attracting an estimated 4,900 crore and gold ETFs around 2,900 crore in net inflows, following a significant correction in gold and silver prices.
International mutual fund schemes have seen a significant resurgence in investor interest, attracting approximately Rs 7,600 crore in net inflows over the past year, a stark reversal from previous outflows, driven by their strong outperformance against domestic markets and limited AI-linked investment opportunities in India.
'The Rs 30,954 crore inflows recorded in May 2026 reflects around 16 per cent year-on-year rise.'
Systematic Investment Plan (SIP) returns for smallcap and midcap mutual funds have seen a significant rebound, with average one-year SIP returns now at 19.1 per cent for smallcap funds and 13.5 per cent for midcap funds, according to Value Research data. This recovery is expected to revive momentum in the retail mutual fund industry, which had experienced a moderation in growth indicators.
Despite the Reserve Bank of India's (RBI) and the government's recent initiatives to attract foreign capital, which are expected to alleviate pressure on long-duration bonds, most debt fund managers are maintaining a cautious stance, favouring shorter-duration papers due to global uncertainties and potential future rate hikes.
Net mutual fund inflows into active equity schemes in India plummeted by 40 per cent month-on-month in May, reaching a one-year low of 22,908 crore, primarily due to weaker lump-sum investments and increased redemptions amidst significant market volatility and global uncertainties.
The SIF vertical, which allows MFs to offer complex products to relatively sophisticated investors, has managed to garner scale in just seven months of the launch of the first products.
