Debt mutual funds seen a sharp pullback in March 2026, with net outflows of ₹2.94 lakh crore across open-ended income and debt-oriented schemes, reflecting heavy redemptions driven largely by quarter-end liquidity adjustments. 

According to Nehal Meshram, Senior Analyst at Morningstar Investment Research India, the outflows were concentrated in short-term and treasury-oriented categories, indicating institutional and corporate cash management activity as the key driver. 

Liquid funds recorded the highest outflows at ₹1.35 lakh crore, followed by overnight funds (₹40,228 crore), money market funds (₹29,207 crore), and low-duration funds (₹25,227 crore). Other categories such as short-duration funds (₹22,194 crore) and corporate bond funds (₹15,293 crore) also saw outflows while gilt funds continued to witness subdued demand with ₹3,078 crore exiting during the month. 

Meshram noted that the March decline was significant enough to drag overall debt fund flows into negative territory for the first quarter of 2026, although the trend largely reflects seasonal adjustments rather than a fundamental shift in investor sentiment towards fixed income. 

Equity inflows jump on correction-led buying 

In contrast, equity mutual funds saw strong traction, with inflows rising 56% month-on-month to ₹40,450 crore in March from ₹25,978 crore in February, according to data from the Association of Mutual Funds in India. The inflows marked the 61st consecutive month of positive equity flows. 

Himanshu Srivastava, Principal Research at Morningstar India, said the surge reflects increased investor participation toward the end of the financial year, supported by SIP contributions, portfolio rebalancing, and opportunistic buying amid market corrections. 

He said that heightened geopolitical tensions in West Asia led to market volatility during the month, which investors largely viewed as a buying opportunity rather than a trigger for risk aversion. 

Mid- and small-cap segments attract strong flows 

A key highlight was the acceleration in flows into mid-cap and small-cap funds. Mid-cap funds attracted ₹6,064 crore while small-cap funds saw inflows of ₹6,264 crore, indicating sustained investor confidence in growth-oriented segments despite valuation concerns. 

Large-cap funds also seen improved traction, with inflows rising to ₹2,998 crore from ₹2,112 crore in February, suggesting a balanced allocation strategy amid global uncertainties. 

Flexi-cap funds remained the top contributors, drawing ₹10,054 crore during the month, as investors continued to prefer diversified strategies that can dynamically allocate across market capitalisations. Large & mid-cap funds and focused funds also saw healthy inflows of ₹5,307 crore and ₹2,425 crore, respectively. 

However, dividend yield funds and ELSS were the only categories to record net outflows. 

Gold ETFs see moderating but positive inflows 

Gold exchange-traded funds (ETFs) continued to attract inflows, albeit at a slower pace. Net inflows stood at ₹2,266 crore in March, compared with ₹5,255 crore in February and ₹24,040 crore in January. 

Meshram said the moderation reflects normalisation after a strong start to the year, though investor interest in gold as a diversification and hedging tool remains intact. For the first quarter of 2026, gold ETF inflows stood at ₹31,561 crore. 

AUM declines on market correction 

AUM of equity-oriented schemes declined to ₹31.98 lakh crore at the end of March from ₹35.39 lakh crore in February, largely due to mark-to-market losses amid the market correction. 

New fund offer (NFO) activity remained moderate, with eight schemes launched during the month, raising a total of ₹1,947 crore. 

Investor participation remains resilient 

Overall, the March data highlights a divergence in mutual fund trends. While debt outflows were driven by seasonal, quarter-end liquidity movements, equity inflows remained robust, supported by retail investors and long-term conviction. 

The sustained inflows into equities—particularly mid-, small- and flexi-cap segments—underscore continued confidence in India’s long-term growth story, even as near-term volatility and global uncertainties persist.