Equity mutual funds attracted a net inflow of Rs 21,780 crore in January, making it the highest monthly infusion in nearly two years, propelled by investors' continued preference for small-cap funds and huge contributions from thematic funds.

Also, the latest flow was about 28 per cent higher than inflows of Rs 16,997 crore seen in December despite slight volatility in equity markets.

Moreover, monthly Systematic Investment Plan (SIP) contributions reached an all-time high of Rs 18,838 crore, surpassing December's Rs 17,610 crore, according to the data released by the Association of Mutual Funds in India (AMFI) on Thursday.

Further, SIP accounts surged to 7.92 crore in January along with a milestone of 51.84 lakh new SIP registrations.

"Despite January's volatility, equity mutual funds displayed resilience. This sustained confidence in equity MFs amidst market fluctuations underscores investors' commitment to long-term wealth creation strategies," Pankaj Shrestha - Head of Investment Services, at Prabhudas Lilladher, said.

The flow in January was the highest since March 2022, when equity-oriented mutual funds witnessed an inflow of Rs 28,463 crore. Also, the latest flow marks the 35th consecutive month of net inflows in equity funds.

The equity segment was also aided by three new fund launches in January which garnered Rs 967 crore cumulatively, Melvyn Santarita, Analyst, Morningstar Investment Research India, said.

Barring focused funds, all categories experienced inflow in equity segments.

Thematic and small-cap oriented funds were the primary contributors to the inflows in equity funds as they attracted Rs 4,805 crore and Rs 3,257 crore respectively. In addition, multi-cap funds witnessed an inflow of Rs 3,039 crore.

Though small-cap funds garnered more than Rs 3,000 crore of net flows for the fourth consecutive month, the quantum was lower by Rs 600 crore on a month-on-month basis.

Interestingly, fund flows into the large-cap category at Rs 1,287 crore, which was at the highest level in 19 months. This came following a withdrawal of Rs 281 crore in December.

"With midcaps at 15 per cent and small caps at 20 per cent premiums, investors are realising the considerable valuation gap with the large-cap segment, and accordingly making adjustments to their investments," Gopal Kavalireddi, Vice President of Research at FYERS, said.

Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC, said that large-caps demonstrated positive contributions in January, reversing the net outflows experienced in December 2023. This shift in trend is in line with valuation differentials among large v/s mid and small caps, suggesting that large caps/flexi caps oriented schemes may attract higher flows in the future.

Overall, the mutual fund industry has witnessed an inflow of Rs 1.23 lakh crore in the month under review as compared to an outflow of Rs 40,685 crore in December. This huge inflow was driven by contributions from debt-oriented schemes at Rs 76,483 crore, hybrid schemes at Rs 20,637 crore along with equity schemes.

The strong inflow pushed the mutual fund industry's assets under management to Rs 52.74 lakh crore in January-end as compared to Rs 50.78 lakh crore at the end of December.

"This trend not only reflects the increasing financial literacy but also highlights the invaluable role played by the AMCs and our dedicated distributor fraternity in fostering a culture of informed investment. As we navigate through regulatory reforms and embrace the shift towards SIPs, it's evident that the Indian Mutual Fund Industry is charting a trajectory of sustained growth and relevance," Venkat Chalasani, Chief Executive, AMFI said.

After two consecutive months of net outflows, debt funds saw a turnaround, attracting Rs 76,469 crore in January. The segment had witnessed a net outflow of Rs 75,560 crore in December and Rs 4,707 crore in November.

The primary driver behind this surge in inflows in debt funds was the liquid fund category. Besides, the significant net inflows were seen in Overnight, Liquid and Money Market funds Liquid funds recorded the highest net inflows of Rs 49,468 crore, followed by Money Market funds that saw net inflows of Rs 10,651 crore and Overnight funds with a net inflow of Rs 8,995.

Also, the quantum of net flows in Gold ETFs (Exchange Traded Funds) saw a sharp uptick to Rs 657 crore during the month under review from Rs 88 crore in December. The category was also helped by the launch of Tata Gold Exchange Traded Fund which garnered Rs 6 crore.

"With ongoing geo-political tensions, US inflation still higher than the desired number, the appeal of gold as safe haven and hedge against inflation is expected to continue," Morningstar's Melvyn said.

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