Last men standing: How mutual fund investors are holding the line against ruthless FIIs

In a classic David vs. Goliath showdown, small mutual fund investors are refusing to bow down to the might of foreign institutional investors (FIIs), who have been unloading Indian equities at an alarming pace. Since the market peaked in September 2024, FIIs have pulled out a staggering Rs 2.13 lakh crore, testing the resilience of India's stock market. Yet, domestic mutual fund investors have fought back, pouring in nearly Rs 1.88 lakh crore between October and February—emerging as the last line of defence against the selloff.

In February 2025, even as volatility rattled the markets, mutual fund inflows remained positive for the 48th consecutive month, coming in at Rs 29,303 crore. While this marked a 26% decline from January, it highlighted the unwavering commitment of domestic investors, who have kept faith in Indian equities despite global headwinds. Systematic Investment Plan (SIP) contributions remained strong at Rs 25,999 crore—surpassing the September figure of Rs 24,509 crore and underscoring the growing financial discipline of retail investors.

The average SIP ticket size has increased from Rs 2,482 when the market peaked out in September to Rs 2,557 now. The number of SIP accounts has also risen from 9.87 crore to 10.17 crore in the last 5 months of market downturn.


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“During Feb’25, the drawdown in Indian stocks intensified, especially in the small-cap space. However, MF data released for Feb '25 indicates that local investors kept their faith in Indian stocks at its darkest hour, both in terms of sources and deployment of funds,” said Vinod Karki of domestic brokerage firm ICICI Securities.

This unbroken streak of mutual fund inflows is unprecedented. The last time equity mutual funds were net sellers was in February 2021. Since then, domestic investors have provided a constant flow of liquidity, countering the selling pressure from FIIs and supporting market stability.

Mirae AMC’s Suranjana Borthakur emphasized the resilience of SIP contributions, attributing the minor month-on-month dip (from SIP book of Rs 26,400 crore in January to Rs 25,999 crore in February) dip to the shorter duration of the month. “The SIP inflows have come down, but the drop is not significant, partly due to February being a shorter month. I believe investors should continue their SIP flows as it is a great time to accumulate units.”

Anand Vardarajan, Chief Business Officer at Tata Asset Management, highlighted the shifting investment patterns among equity inflows. “Equities continued to see strong flows in February, but there was a shift away from small and mid-cap compared to previous months. Inflows into large-cap stocks remained almost intact due to valuation comfort. We observed a paradox of risk, as equity flows dropped by about 25% compared to January. It’s important to remember that risk increases as markets rise and decreases when markets fall. However, investor flows often follow their own pattern.”

Despite persistent FII selling, retail investors have emerged as the backbone of India’s stock market, cushioning the impact of foreign capital flight. Their sustained participation—whether through mutual funds or direct equities—continues to support market momentum, making them a crucial force in India’s equity resilience.

However, this is not necessarily a victory for small investors. They are holding the line, but the power struggle is far from over. FIIs still wield significant influence over market direction, and if global headwinds intensify, domestic flows may come under pressure. The key question now is whether this trend can hold in the months ahead as global factors continue to play out. For now, mutual fund investors have proven to be a stabilizing force, but their real test is yet to come.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)