Topic 6: MUTUAL FUNDS: REVERBERATION

In February 2025, Indian mutual funds faced a difficult month, especially in the equity segment, due to market volatility and foreign institutional investor (FII) outflows. Most equity mutual funds posted negative returns, with 487 out of 542 funds experiencing losses, some as steep as 25%. However, funds like Parag Parikh Flexi Cap Fund, Motilal Oswal Multi Cap Fund, and Motilal Oswal Large Cap Fund performed relatively better, showing smaller declines than their peers. The Indian equity market was in a correction phase, driven by high valuations, geopolitical tensions, and sustained FII selling. On the other hand, debt mutual funds generally fared better, with corporate bond funds such as Axis Corporate Debt Fund and ABSL Corporate Bond Fund providing returns around 8%. Some credit risk funds, including BOI Credit Risk Fund and ABSL Credit Risk Fund, also delivered positive returns, though with higher volatility. Hybrid funds showed varied performance, with some proving more resilient than pure equity funds due to their diversified asset allocation. Overall, February 2025 was marked by significant challenges for equity mutual funds, while debt funds offered more stable returns, influenced largely by the market correction and FII outflows. The debt mutual funds generally performed better, offering stable returns, with medium-duration funds recommended for their potential to benefit from interest rate changes. Bond yields surged during the month, with the 10-year benchmark yield rising from 6.65% to around 6.85%, affecting debt fund performance. Despite the challenges in equity markets, systematic investment plan (SIP) inflows in February 2025 were expected to surpass the previous year’s figures, demonstrating resilience among retail investors. January 2025 saw a total of ₹26,400 crore in SIP inflows. As of January 31, 2025, the Indian mutual fund industry’s AUM stood at ₹67.25 trillion, although the AUM of equity funds may have decreased due to outflows and negative returns. Sector-wise, funds focused on technology, IT, pharmaceuticals, and healthcare showed resilience, benefiting from advancements in AI, cloud computing, and steady demand for healthcare services. Overall, while the equity segment faced significant challenges in February 2025, debt funds and SIP inflows provided stability, laying a strong foundation for long-term growth in the Indian mutual fund industry. Investors are advised to focus on diversified portfolios and long-term strategies as market conditions evolve.



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