Inflows into equity mutual funds cooled in August after a record surge, as trade tensions and geopolitical risks influenced investors to move away from highly volatile assets.
Equity mutual fund inflows dropped 21.7% in August to ₹33,430.37 crore from ₹42,702.35 crore in July, with inflows into small-cap funds dropping sharply by 23% to ₹4,992 crore, as lofty valuations and lack of earnings visibility led investors to pause allocations.
Mid-cap mutual funds saw a marginal gain of 2%, with inflows totaling ₹5,330.62 crore, according to AMFI. However, investors shifted their attention toward large-cap stocks, seeking stability amid uncertain times, while their reasonable valuations have also made them preferred bets.
Large-cap funds Attract investors’ interest
Large-cap funds saw robust inflows of ₹2,834 crore in August, up from ₹2,125 crore in July, marking a 33.36% month-on-month growth and bringing large-cap AUM to ₹3.89 lakh crore.
However, weak inflows into small-cap funds weighed on the overall equity AUM, which declined to ₹33.08 lakh crore from ₹33.27 lakh crore, according to AMFI data.
Naval Kagalwala, COO and Product Head, Shriram Wealth, said, “While the month saw a net positive inflow of investors into mutual funds with 31.85 lakh new folios and a net inflow of ₹52,443 crore, the month-on-month rate of growth was comparatively lower versus July.”
Kagalwala added that the new folios in August across equity & hybrid schemes stood at 21.88 lakh, approximately 37% lower than July’s 34.69 lakh. The net inflows in equity & hybrid schemes of ₹48,724 crore in August were also about 24% lower compared to the ₹63,582 crore net inflow in July.
“This is likely a result of a 2% fall in the Nifty 500 index in August 2025 and a 5.5% decline over the last 12 months, driven by uncertainty due to tariffs, selling by FIIs, and stretched valuations amid weak earnings,” said Naval Kagalwala.
Analysts pin hopes on India-US talks to stabilize markets
Trade relations between India and the US have deteriorated following the White House’s imposition of an additional 25% tariff on Indian imports over continued purchases of Russian oil, taking the total tariff to 50%, the highest among US trading partners.
The additional tariffs have also dashed hopes of a near-term trade deal between the two nations, leaving investors concerned about the potential impact on growth in certain export sectors if the tariffs remain in place for an extended period.
To curb the impact of the levies, the Indian government has rolled out consumption tax cuts and is also in the process of identifying potential countries to diversify exports. Meanwhile, trade deal hopes resurfaced recently after Donald Trump said both countries will continue their trade talks.
According to the analysts, the trade deal will revive the sentiment and boost investor confidence, potentially driving inflows into equity mutual funds.
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