Sectoral and thematic mutual fund inflows down 49% to Rs 945 crore in December. Is caution setting in among investors?

Sectoral and thematic mutual funds saw a sharp slowdown in investor interest in December, with monthly inflows falling 49% to Rs 945 crore, compared with Rs 1,864 crore in November, according to the monthly data by Association of Mutual Funds in India (AMFI)

Market experts believe that this drop in the inflows is because of the performance these funds gave and many of them have not beaten their benchmarks or made significant alpha and when investors realize that their investments aren't doing well in factsheets and annual returns they naturally lose interest.

Also Read | Gold and silver-backed multi-asset funds see 40% jump in December inflows. Is risk aversion rising?


Anand K Rathi - Co Founder of MIRA Money shared with ETMutualFunds that sectoral and thematic funds are highly cyclical by nature, and when the cycle turns, performance tends to correct sharply and the December’s data reflects that reality.

Rathi further added that investors who put money into these funds because of their great historical returns started to rethink how much they had put in when the returns slowed down or became negative so, the reduction in inflows isn't so much about a sudden loss of interest as it is about investors reacting to what has happened instead of what they thought would happen.

Another expert, Hiten Jain, Equity Fund Manager at Invesco Mutual Fund shared with ETMutualFunds that high volatility and correction in the mid and small cap stocks in general is leading to investors staying cautious in thematic categories.

“Uncertainty around the India US trade deal and sharp depreciation in the currency is not helping the sentiment. There is excitement among investors towards an alternate asset class of precious metals given the recent price increase and the continuous geopolitical news flow,” Jain further added.

The data from AMFI showed that on a yearly basis, the dip in the inflows is by 94% from an inflow of Rs 15,331 crore in December 2024. In the calendar year 2025, the sectoral and thematic mutual funds received a total inflow of Rs 38,144 crore compared to an inflow of Rs 1.55 lakh crore in the calendar year 2024.

So, does this indicate that investors are becoming more cautious about concentrated strategies in certain sectors or themes?

Rathi said that what we are seeing is not a structural shift away from sectoral funds, but a recurring behavioral pattern, most DIY investors tend to chase recent performance and when a sector does well, money flows in rapidly—often after the best phase of returns has already played out.

What does 2025 trend say

In the calendar year 2025, the category received the highest inflows in January, February, and July among all equity mutual fund categories.

The AUM went up by 14% from Rs 4.72 lakh crore in December 2024 to Rs 5.37 lakh crore in December 2025.

Also Read | Mutual funds increased cash allocation by over Rs 5,900 crore to Rs 2.07 lakh crore in December

Himanshu Srivastava, Principal Research, Morningstar Investment Research India while commenting on the AMFI trend said that sectoral and thematic funds witnessed significant moderation in net inflows, which is also one of the primary reasons for the low net inflows for equity-oriented funds in December and this recent trend reflects some cooling of momentum in existing thematic strategies.

Rathi said that the inflow pattern across the 12 months shows high risk appetite during periods of strong sector performance, followed by caution once volatility or underperformance sets in and this behaviour is unlikely to change materially and then it reinforces why sectoral and thematic funds should be treated as tactical allocations, not long-term core holdings.

Scorecard: Sectoral and thematic mutual funds in 2025

In the calendar year 2025, sectoral and thematic funds gave an average return of 2.85%. There were 195 funds in the said time period excluding international funds, of which Quant BFSI Fund gave the highest return of 23.71% and Shriram Multi Sector Rotation Fund lost the most of around 19.05% in CY25.

In the month of December, sectoral and thematic funds gave a negative average return of 0.54%. There were 230 funds in December month which lost and gained upto 5%. DSP Natural Res & New Energy Fund gave the highest return of 4.78% whereas Motilal Oswal Innovation Opportunities Fund lost the most of around 4.89% in December.

New funds added in the basket

Around 37 sectoral and thematic mutual funds were launched in the market in 2025 which together collected Rs 22,575 crore. Some launches in the category that gained investors’ attention were Baroda BNP Paribas Business Conglomerates Fund, ICICI Pru Conglomerate Fund, Sundaram Multi-Factor Fund, The Wealth Company Ethical Fund, and Edelweiss Consumption Funds.

Also Read | Which mutual fund categories caught investors’ attention in 2025

Categories that came in limelight in 2025

In 2025, three sectoral or thematic categories gained investors’ attention excluding international funds. These categories were - consumption funds, auto sector funds, and technology funds.

Rathi said that at this point, certain sectors like banking and autos look relatively attractive based on recent performance and earnings visibility; banking, in particular, has delivered strong returns over the past one to one-and-a-half years and continues to generate alpha for now. However, even here, visibility is largely short-term, not structural.

“It is very likely that inflows into these sectors will pick up again as investors react to recent performance trends. That said, sectoral and thematic funds should always be approached with a clear target and exit strategy. Without that discipline, investors risk building a portfolio that is diversified in appearance but actually concentrated in one cycle, which rarely generates sustained alpha,” he further said.

To this Jain said that the financial services sector looks attractive given the acceleration in credit growth on RBI’s various measures to ease liquidity, India continues to be in an expansionary credit cycle, further, it is trading at reasonable valuation both versus its own history and relative to the market.

One should always invest based on their risk appetite, investment horizon, and goals.

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

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