Equity mutual fund inflows positive despite monthly dip, thematic funds lead the way

This highlights the sustained interest in the equity market and investor confidence in new investment opportunities.

Smallcap and midcap funds maintained their appeal among investors, with both categories experiencing positive inflows. Smallcap fund inflows stood at Rs 2,678 crore, albeit a reduction from August's Rs 4,265 crore. Similarly, midcap funds, while still attracting investments, saw a decrease in inflows, declining from Rs 2,512 crore to Rs 2,001 crore.

"The dip in the net flows of these categories could be attributed to some bit of profit booking by investors coupled with concerns regarding inflated valuations in some of these segments," Santarita said.

According to Akhil Chaturvedi, Chief Business Officer, Motilal Oswal Asset Management Company, small-cap flows' decline can be attributed to certain fund houses temporarily halting inflows, possibly due to concerns about rich valuations in the mid and small-cap space.

The midcap and small-cap indexes have seen significant rallies over the last six months and one year. Consequently, investors have been flocking to these categories, resulting in increasing flows. However, it's important to note that both midcap and small-cap categories are inherently volatile, with sharp drawdown risks.

According to Santarita, investors should have a long-term time horizon when investing in these categories. Utilising the Systematic Investment Plan (SIP) route for investments can help mitigate volatility through dollar-cost averaging over extended periods.

Among the equity asset classes, sectoral/thematic funds stood out with the highest inflows, amounting to Rs 3,146.8 crore. The surge in this category's popularity can be attributed to the launch of four new funds in September, cumulatively attracting Rs 1,629 crore, Santarita said.

This trend follows the significant inflows in August 2023, where this category led with Rs 4,805.81 crore.

The multi-cap category witnessed an upswing in inflows, driven by the launch of a new fund, the WhiteOak Capital Multi Cap Fund.

"This category recorded net inflows of Rs 2,234.5 crore, with the WhiteOak Capital Multicap Fund garnering Rs 411 crore. The data reflects investors' appetite for diversified investment options," Santarita said.

In contrast to the overall trend, two categories saw net outflows in September 2023. Equity-Linked Savings Schemes (ELSS) experienced outflows of Rs 141.15 crore, while the large-cap category saw net outflows of Rs 110.6 crore. Notably, this marked the fifth consecutive month of net outflows for large-cap funds.

"Active large-cap funds have been facing increasing competition from passive funds, prompting some investors to opt for the passive route. Passive funds, including index funds and ETFs, continue to attract healthy net inflows month after month," Santarita said.