Halfway Through 2025: What mutual fund flows tell us about investor sentiment

The first half of 2025 has been a wild ride for markets around the world. Uncertainty has always been there, from rising tariff tensions to geopolitical conflicts. India has handled a lot of the world’s ups and downs better than most, but the real story is how Indian investors have reacted, especially through mutual funds.

Data from the Association of Mutual Funds in India (AMFI) shows that the amount of money that Indian mutual funds manage (AUM) grew by more than ₹7 lakh crore between January and June, going from ₹67.25 lakh crore to ₹74.41 lakh crore. That’s a strong 11 percent growth in just six months, thanks to both rising market values and more money coming in.

Mutual fund inflows are already higher than in previous years. In the first half of 2025, the industry saw ₹4.18 lakh crore in net inflows. This number is already higher than the full-year inflows for most years since 2000 (except for 2024). That makes 2025 a great year so far, even though things are still up in the air.

To better understand why investors act the way they do, let’s divide this up into equity, debt, and hybrid categories.

Equity mutual funds: Still good, but slowing down

Between January and June 2025, equity mutual funds got ₹1.6 lakh crore in net inflows. That number is good, but it’s moving more slowly than it did in late 2024. Since February, monthly inflows have gone down from ₹35,000–₹40,000 crore to about ₹24,000 crore.

Interestingly, equity AUM keeps going up steadily, from ₹29.5 lakh crore in January to ₹33.47 lakh crore in June, even though it has slowed down. This means that growth is being supported by market performance and continued contributions, even if they are slower.

Thematic funds are losing steam

The sharp drop in thematic and sectoral funds has made it much harder for equity to flow in. These funds used to be very popular with investors who were betting on themes like infrastructure, defence, or green energy. But by June, they only had ₹476 crore in new money, down from over ₹15,000 crore in December 2024.

These funds had a great run from July 2023 to early 2025, but now they seem to be getting tired. This is probably because of more uncertainty in the world and weaker recent returns. So far this year, only one thematic category has been able to make double-digit gains.

Flexi-cap and mid-cap are still stable

On the other hand, categories that are more diverse, like flexi-cap, mid-cap, and multi-cap funds, are doing well. Flexi-cap funds, in particular, stood out with ₹5,733 crore coming in in June, which was the most of any type of equity fund.

Debt funds: A story of change

This year, debt fund flows have been all over the place. In April, there was a spike that brought in ₹2.19 lakh crore. This was because companies were putting extra money into liquid and money market schemes before the end of the financial year. But in May and June, redemptions changed the trend, with liquid funds alone losing more than ₹65,000 crore.

That being said, some types of debt are becoming more popular again because interest rates are going down. The repo rate has dropped by a full 1 percent this year, bringing it down to 5.5 percent in June. This has increased interest in short-term and corporate bond funds, which saw strong inflows   of ₹10,277 crore in June and ₹7,124 crore in July, respectively.

On the other hand, overnight and ultra-short funds saw money leave because their yields became less appealing as rates fell.

Also read | Falling interest rates: Is now the time to lock into annuity plans for higher payouts? 

Hybrid funds: Low risk, high return

There has been a rise in hybrid funds. From December 2024 to June 2025, flows went up from ₹4,370 crore to ₹23,223 crore. Arbitrage funds are driving this growth, with ₹15,585 crore coming in in June alone. These funds do well in unstable markets because they take advantage of price differences between the cash and derivatives markets.

People are also becoming more interested in other hybrid categories, like dynamic asset allocation and multi-asset funds. Investors seem to be moving towards balanced, flexible options as equity markets become more volatile and fixed-income returns fall.

Mixed signals for passive investing

In 2024, passive funds did very well, especially index funds. But it looks like the momentum has slowed down in 2025. In June, monthly inflows into index funds fell below ₹2,000 crore, but AUM has steadily risen to ₹3.4 lakh crore.

But gold ETFs tell a different story. Gold prices have gone up from ₹63,000 to more than ₹1 lakh per 10 grams since mid-2024. Gold ETFs have seen over ₹19,000 crore in inflows and crossed ₹65,000 crore in AUM. India still prefers physical gold, but ETFs are slowly becoming more popular.

Funds of Funds (FoFs) that invest overseas are still seeing weak flows because of rules that limit international investments and a lack of optimism in the global market.

Also read | Is SIP of Rs 10,000 pm in a mid-cap mutual fund enough to reach Rs 1 crore in 15 years?

SIPs: Strong on the Surface, but More to the Story

Systematic Investment Plan (SIP) inflows are still strong, reaching an all-time high of ₹27,269 crore in June 2025. But if you look more closely, you can see some weak spots. The SIP discontinuation rate went up from 58.7 percent in June 2024 to 77.8 percent in June 2025. There was a big jump in April because SEBI changed its reporting rules.

Even without that, the number of new SIP accounts has dropped by half, from 22.78 lakh in June 2024 to 13.75 lakh in June 2025. However, SIP AUM grew 23 percent year-on-year to ₹15.31 lakh crore, which means that current investors are putting more money into the fund.

The contribution rate, which is the percentage of actual payments to total SIPs, went up from 74.6 percent to 94.1 percent, which means that more people are participating in a better way.

A growing group of investors

The data also shows a change in behaviour over time. SIPs that have been held for more than five years have gone up a lot, from 4–5 percent in 2020 to almost 30 percent in 2025, in both big cities and small towns. Investors are slowly getting rid of short-term habits and getting used to holding stocks for longer periods of time.

Conclusion

The trends in mutual funds for 2025 show that investors are getting older but are still careful. Even though equity flows are still going up, the slowdown in thematic funds suggests that investors are moving away from sector bets that they are sure about. Debt and hybrid funds are changing to keep up with changing interest rates. SIPs, on the other hand, are showing signs of consolidation rather than growth, even though they are still strong in numbers.

Indian investors seem to be choosing balance and consistency over risky bets, which is a good thing given how uncertain the world is and how volatile the markets are.