The Indian equity market continued to remain rather in February 2025, and the Union Budget 2025-26 failed to stir up positive sentiments. The U.S. President Donald Trump’s protectionist policies, mainly the tariff tantrums, and the potential rise in geopolitical fragmentation, tensions, and possibility of the U.S. Federal Reserve going slow with rate cuts, haven’t augured well for the market.
The Foreign investors dumped Indian equities in February 2025 and the previous month, and cumulatively FIIs have net sold to the tune of Rs 1.13 lakh crore in the first two months of CY2025.
The bellwether, BSE Sensex, as a result, eroded investor wealth posting -5.6% absolute returns in February 2025, the BSE Large Cap Index -6.6%, whereas the BSE Mid Cap Index and the BSE Small Cap Index, -10.5% and -13.8%, respectively in February 2025.
Table 1: YTD Returns of Key Indices
| Indices | Absolute Returns (%) |
| 01-Jan-25 To 12-Mar-25 | |
| BSE Large Cap | -6.7 |
| BSE Large Cap – TRI | -6.6 |
| BSE Mid-Cap | -15.7 |
| BSE Mid-Cap – TRI | -15.6 |
| BSE SENSEX | -5.7 |
| BSE SENSEX – TRI | -5.6 |
| BSE Small-Cap | -20.9 |
| BSE Small-Cap – TRI | -20.8 |
Data as of March 12, 2025
Past returns are in no way indicative of the future.
(Source: ACE MF, data collated by PersonalFN Research)
Against this backdrop, retail and HNI investors, in general, seemed worried. The data released by the Association of Mutual Funds in India (AMFI) shows that inflows into various sub-categories of equity mutual funds have been impacted in February 2025 compared to the previous month.
Table 2: Inflows into Open-ended Equity Mutual Funds
| Open-ended Equity Oriented Schemes | Aug-24 | Sep-24 | Oct-24 | Nov-25 | Dec-25 | Jan-25 | Feb-25 |
| Multi Cap Fund | 2,475 | 3,509 | 3,597 | 3,626 | 3,075 | 3,567 | 2518 |
| Large Cap Fund | 2,637 | 1,769 | 3,452 | 2,548 | 2,011 | 3,063 | 2866 |
| Large & Mid Cap Fund | 3,294 | 3,598 | 4,857 | 4,680 | 3,812 | 4,123 | 2656 |
| Mid Cap Fund | 3,055 | 3,130 | 4,683 | 4,883 | 5,093 | 5,148 | 3407 |
| Small Cap Fund | 3,209 | 3,071 | 3,772 | 4,112 | 4,668 | 5,721 | 3722 |
| Dividend Yield Fund | 500 | 1,530 | 533 | 216 | 277 | 215 | 69 |
| Value Fund/Contra Fund | 1,728 | 1,964 | 2,457 | 2,088 | 1,514 | 1,556 | 1347 |
| Focused Fund | -84 | -273 | 693 | 430 | 456 | 783 | 1288 |
| Sectoral/Thematic Fund | 18,117 | 13,255 | 12,279 | 7,658 | 15,331 | 9,017 | 5712 |
| ELSS | -205 | -349 | 383 | 619 | 188 | 797 | 615 |
| Flexi-cap | 3,513 | 3,215 | 5,181 | 5,084 | 4,731 | 5,698 | 5104 |
| Total | 38,239 | 34,419 | 41,887 | 35,944 | 41,156 | 39,688 | 29,303 |
(Source: AMFI)
Investors now seem to have turned wary of Small Cap Funds, Sector & Thematic funds, and Mid Cap Funds, which until a few months ago, reported upbeat inflows.
Inflows into Sector & Thematic Funds, Mid Cap Funds and Small Cap Funds slumped month-on-month 37%, 34% and 35%, respectively in February 2025. Whereas inflows into Large Cap Funds fell only 6% month-on-month. Perhaps investors have wisely recognised that Large Cap Funds may add stability to their investment portfolio while aiming to generate wealth amid volatile times. Similarly, inflow into Flexi Cap Funds fell less month-on-month in February 2025, with investors recognising the versatility of this sub-category.
[Read- Flexi Cap Funds: An Apt Choice During Volatile Times]
The overall inflows into equity mutual funds slumped 26% from the previous month and 30% from its peak of October 2024.
Mutual fund inflows through the Systematic Investment Plans (SIPs) also declined 2% to a 3-month low of Rs 25,999 crore.
Table 3: SIP Contributions Month-on-Month and Over the Years
(Source: AMFI)
As regards the SIP folios, like in January 2025 the number of discontinued SIPs or those whose tenure was completed outdid the tally of new SIPs registered also in February 2025. Perhaps seeing their portfolios in red, investors discontinued or stopped SIPs. The SIP discontinuation is perhaps more from first-time equity investors who entered the market during the COVID-19 pandemic times and haven’t witnessed longer market cycles.
Given that the Indian equity market continues to remain volatile even now, it wouldn’t be unsurprising if SIP flows decline further for March 2025 as well.
[Read: Should You Stop Your SIPs Now Amid Falling Equity Markets]
That being said, the total number of SIP accounts was Rs 10.17 crore for the period April 2024 to February 2025, around 21% higher than the previous financial year.
What Should Investors Do?
At a time when the Indian equity market, the bellwether BSE Sensex has corrected nearly 14% since the peak, as an investor you could consider staggered lump sum investments.
As the Indian equity market is expected to remain volatile this year with a mix of caution and optimism due to a variety of global and domestic factors, staggered lump sum investments would prove more meaningful than deploying all the investible surplus at one go.
If you are taking the SIP route for wealth creation and accomplishing the envisioned financial goal/s, keep in mind that your SIPs in worthy mutual fund schemes, ideally, should be continued for a longer investment horizon (5+ years).
A longer investment horizon shall help mitigate the risk with the inherent rupee-cost-averaging feature and potentially add to the power of compounding.
SIP-ping in equity mutual funds would prove beneficial as rupee-cost averaging would work in your, the investors’ favour. More units will be purchased at lower NAV, and when the market begins to ascend again, it shall compound wealth.
If you already have ongoing SIPs in some of the best mutual fund schemes, don’t think about pausing/discontinuing them if market volatility intensifies.
Note that while market correction and crashes can be nerve-wreaking, they provide an opportunity for portfolio construction and tweaking.
If the market downturn has made you more risk-averse, or your asset allocation has changed significantly from what is best suited for you, review and rebalance your mutual fund portfolio.
If your mid and small-cap holdings have underperformed significantly, you may want to rebalance by shifting some investments towards more stable assets like large-caps amid volatile times.
In volatile times it also makes sense to diversify your portfolio across asset classes, i.e. equity, debt, and gold, and in this regard, investing in some of the best Multi Asset Allocation Funds makes sense in 2025 and beyond.
Investing sensibly and strategically paves the way to wealth creation. So, be a thoughtful investor.
Happy Investing!
This article first appeared on PersonalFN here
