Topic 7: MUTUAL FUNDS: FAITH SIREN

In May 2025, the Indian mutual fund industry witnessed a robust performance across all major segments, reflecting strong investor sentiment and favourable macroeconomic conditions. Equity mutual funds were the standout performers, with every category ending the month in positive territory. Smallcap funds led the rally with an average monthly return of 8.2%, driven by increased investor interest in emerging opportunities and valuations in the smaller-cap segment. Midcap and multi-cap/flexicap funds also delivered solid gains, as a shift in market sentiment toward broader participation lifted performance across the board. Largecap funds recorded a more modest average return of 2.22%, although some top-performing schemes neared 4%. Sectoral and thematic funds delivered mixed results; while contra funds earned an average of 3.13%, pharma and healthcare sector funds underperformed, posting the lowest average equity category return at just 1.15%. Defence sector funds continued their strong year-to-date performance, while gold and BFSI (banking, financial services, and insurance) funds benefited from market uncertainty and investor hedging strategies. In the debt segment, falling bond yields—declining from 6.32% to 6.18% on the 10-year benchmark—contributed to mark-to-market gains, especially for long-duration funds. Expectations of a potential RBI rate cut in June, a lower fiscal deficit, and relaxed FPI norms supported strong inflows into debt funds. Although overall debt fund inflows rebounded sharply, the total number of folios in income-oriented schemes fell by 3% year-on-year, indicating a gradual investor shift toward equity and hybrid options. Hybrid funds sustained their popularity, with folios rising 16.1% over the year, reflecting interest in balanced strategies. Passive investing continued its momentum, with index funds and ETFs seeing a 48.3% surge in folio count. The industry as a whole reached new milestones, with assets under management (AUM) hitting a record ₹69.5 trillion by April-end and total folios crossing 23.6 crore—up 32% from the previous year. Systematic Investment Plans (SIPs) maintained healthy momentum, with monthly contributions exceeding ₹26,600 crore and accounting for over 20% of total AUM. Additionally, May saw record foreign portfolio investor (FPI) inflows of ₹19,860 crore into equities and ₹11,090 crore into debt—the highest in 2025—further boosting performance and reinforcing market confidence.



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