Investors Maintain Steady SIP Flows Amid 14% Equity Mutual Fund NAV Decline from September 2024

Mutual Fund Inflows Remain Resilient Despite Weaker Returns

Indian retail investors continue to channel money into mutual funds through systematic investment plans (SIPs) even as returns have deteriorated, according to a report by Kotak Institutional Equities. The report highlights a growing disconnect between strong inflows and weak performance, making the current phase a "game of patience" for investors who have stayed disciplined despite market volatility.

The correction in equities in March 2026 has pushed SIP-linked returns lower across cohorts. Investors who began SIPs between 2022 and 2025 are now seeing muted or negative XIRRs, reversing the double-digit gains recorded during the post-pandemic rally. Kotak's analysis shows that returns over July 2024 to March 2026 have been weak, with the weighted-average net asset value (NAV) of equity mutual funds declining about 14% from its September 2024 peak. This has impacted the realised returns for investors who entered near market highs.

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Despite the weak return profile, retail participation has not slowed. SIP inflows have continued to rise steadily, and equity mutual funds recorded Rs 1.1 trillion of active inflows in the first quarter of CY2026. Investors also deployed additional lump-sum investments during market dips, showing their continued faith in long-term investing strategies.

The pressure on returns has been more acute in segments that previously saw strong investor interest. According to the report, small-cap and sectoral/thematic funds have delivered negative returns on aggregate, underperforming broader equity categories over the past 18-24 months. These segments had attracted significant inflows during the rally phase, amplifying the impact of the subsequent correction on investor portfolios.

External factors have also contributed to weaker returns. Foreign portfolio investors have been persistent sellers, with net outflows of nearly $19 billion in 2026 so far. India has underperformed several emerging markets, including South Korea and Taiwan, which have seen relatively stronger inflows. Domestic mutual funds, supported by steady SIP inflows, have absorbed much of this selling, helping stabilize markets during periods of volatility. However, Kotak noted that cash levels within mutual funds have declined, reducing the buffer available to absorb continued foreign outflows.

The key risk, according to the report, is behavioral. If weak trailing returns persist, investor conviction, particularly among newer participants, could come under strain, potentially affecting future inflows.

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