Net investments into equity mutual funds declined sharply in May as investors turned cautious amid heightened geopolitical tensions in West Asia, rising crude oil prices and increased market volatility.

According to monthly data released by the Association of Mutual Funds in India (Amfi), net inflows into equity schemes stood at ₹22,907.77 crore in May, down 40 per cent from ₹38,440.20 crore recorded in April. Despite the moderation, equity funds registered their 63rd consecutive month of positive inflows, underscoring the continued participation of retail investors in the market.

Small-cap and mid-cap funds continued to attract strong investor interest, garnering a combined inflow of ₹9,331 crore during the month and accounting for over 40 per cent of total equity fund inflows. However, inflows into flexi-cap funds nearly halved to ₹5,175.54 crore from ₹10,147.85 crore in April, reflecting a slowdown in discretionary investments.

Hybrid funds also witnessed a decline in inflows, attracting ₹10,560.24 crore compared with ₹20,565.24 crore in the previous month. Debt mutual funds recorded a substantial net outflow of ₹96,948.51 crore, which weighed on the overall industry assets under management (AUM). Total mutual fund AUM stood at ₹81.58 lakh crore at the end of May, marginally lower than ₹81.92 lakh crore in April.

Gold exchange-traded funds (ETFs) saw net outflows of ₹725.04 crore, ending a 13-month streak of positive inflows. Analysts attributed the reversal to profit-booking by investors and expectations of subdued inflows in the coming months, as several asset management companies have suspended fresh bulk subscriptions into gold ETFs.

Systematic investment plan (SIP) contributions remained largely steady at ₹30,954 crore during May, compared with ₹31,115 crore in April, indicating sustained retail participation despite market uncertainty.

“The mutual fund industry’s AUM remained largely stable at ₹81.58 lakh crore in May, witnessing only a marginal contraction amid ongoing global uncertainties and commodity price volatility. Equity inflows remained positive at ₹22,907 crore, marking the 63rd consecutive month of net inflows,” said Venkat Chalasani, chief executive of Amfi.

Suranjana Borthakur, head of distribution and strategic alliances at Mirae Asset Investment Managers (India), noted that market sentiment had weakened during the month as benchmark indices corrected amid geopolitical tensions, crude oil volatility and foreign institutional investor outflows. While inflows into flexi-cap, thematic and value-oriented funds moderated sharply, she said the resilience of mid- and small-cap funds indicated that retail investors continued to stay invested through SIPs.

“Retail India is not exiting the market; it is continuing to invest systematically and build wealth over the long term,” Borthakur said.

Gaurav Goyal, chief business officer at Canara Robeco Asset Management Company, said retail flows remained resilient, though discretionary lump-sum investments slowed due to heightened uncertainty.

Nehal Meshram, senior analyst at Morningstar Investment Research India, said relatively attractive fixed-income yields and the higher opportunity cost of holding gold may have contributed to the outflows from gold ETFs.