Geopolitical tensions, trade war fear drove mutual fund redemptions higher: ICRA Analytics

Escalating geopolitical tensions and global trade war concerns have led to a surge in redemptions from equity mutual funds. Redemptions have increased by nearly 71% in the last five years at Rs 31,444 crore in March 2025 as compared to Rs 18,386 crore in March 2020.

However, inflows into these funds have increased by nearly 114% since March 2020 to touch Rs 25,082 crore in March 2025 indicating the resilience and growing confidence of investors in the Indian mutual fund market, ICRA Analytics said.

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On a year-on-year basis, mutual fund redemptions have increased by 4.5% from Rs 30,088 crore in March 2024, while inflows have grown by 10.82% from Rs 22,633 crore in March 2024.

“Escalating geopolitical tensions and global trade war concerns on worries that higher tariffs may be levied by the new U.S. administration, coupled with the volatility in the domestic equity market, have made investors slightly cautious. Market participants are a little uncertain as to how the turbulence caused due to tariff imposition by the new U.S. government will evolve,” said Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics

“Foreign Institutional Investors have turned net sellers in the equity segment. Moreover, concerns that a global trade war may hit corporate earnings have led to a sharp decline in investor sentiment. All these have contributed to the surge in redemption from equity mutual funds,” he added.

Investors also remained wary that global crude oil prices may go up due to U.S. sanctions on Iran and tighter supply from OPEC+ producer group. Increase in global crude oil prices is credit negative for the Indian economy as the country imports more than 80 per cent of the oil requirements.

Despite the volatility, it is crucial that investors avoid panic selling and look at diversifying across different asset classes and sectors to help mitigate risks and reduce the impact of a downturn in any single investment.

“Market downturns may be considered as an opportunity, and staying invested will result in increased accumulation of mutual fund units, which will benefit the investor once the market recovers in the long run. Regular investments through SIPs can help average out the purchase cost of mutual fund units over time, reducing the impact of market volatility,” Ashwini Kumar mentioned.

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The steady rise in SIP contributions, even amid market volatility, highlights investors' growing confidence and commitment to long-term wealth creation. This trend shows their resilience in facing market fluctuations and their determination to stay focused on their financial objectives, he added.