Mutual funds turned aggressive buyers in March, using the sharp market correction to step up equity purchases even as geopolitical tensions and inflation worries weighed on sentiment. Data showed that cash holdings across mutual funds dropped to a 16-month low of ₹1.86 lakh crore in March, down ₹24,319 crore, or 12%, from February levels of ₹2.1 lakh crore. This is the lowest cash balance seen since December 2024.

Nearly 60% of fund houses dipped into their cash reserves to accumulate stocks during the correction, even as benchmark indices recorded their steepest monthly decline since March 2020. The Indian stock market recorded its worst month in five years since Covid period, with the Sensex and Nifty tumbling around 13%, wiping out nearly ₹40 lakh crore in investor wealth.

This deployment also pulled down cash as a proportion of assets under management to 4.73%, a four-month low, compared with 4.86% in February.

Among the major players, SBI Mutual Fund led the buying activity, with its cash holdings falling sharply to ₹27,464 crore from ₹34,704 crore in February. ICICI Prudential Mutual Fund also reduced its cash position to ₹17,290 crore from ₹23,876 crore. Motilal Oswal Mutual Fund more than halved its reserves to ₹3,124 crore, while Quant Mutual Fund and HDFC Mutual Fund pared their cash levels to ₹10,000 crore and ₹21,352 crore, respectively.

As per the latest data released by the Association of Mutual Funds in India (AMFI), equity-oriented schemes saw strong inflows of nearly ₹40,000 crore in March, about 40% higher than the previous month, driven by improved valuations following the recent market correction amid the West Asia conflict. The inflows marked the 61st consecutive month of positive equity 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. 

On the other hand, debt-oriented schemes recorded massive outflows of ₹2.95 lakh crore, largely due to seasonal liquidity needs at the financial year-end, along with continued concerns around rising yields and inflation. Corporate bond funds alone saw outflows of nearly ₹15,000 crore, as investors reassessed duration risk amid heightened volatility.