As market volatility rose, equity investors preferred broad-based mutual funds in the first quarter: Report

Revealing a growing desire for stability during volatile market conditions, the first quarter of the current fiscal saw equity investors rally behind broad-based mutual funds, which accounted for 64% of total net equity inflows, according to a recent report by Motilal Oswal Mutual Fund. 

Passive broad-based funds claimed the larger share of the pie, emphasising a strong investor preference for diversified exposure across market capitalisations and sectors. “The net flows share of broad-based funds in passive equities rose from 84% to 106% (QoQ), while in active equities, it fell from 72% to 55% (QoQ),” the report, titled ‘Mutual Fund’s latest Passive Study Report – Where Money Flows,’ noted.

The increase in passive broad-based fund inflows underlined the shift in investor behaviour towards low-cost, index-linked investment options that still provide broad market exposure. “Broad-based funds give investors access to a diversified basket of stocks, which reduces concentration risk and smooths returns during uncertain times,” it noted.

Among the active categories, flexi-cap funds led with ₹15,800 crore in net inflows, followed by small-cap funds (₹12,300 crore) and mid-cap funds (₹10,800 crore). This suggests that even within active, broad-based strategies, investors are increasingly choosing dynamic and growth-focused fund categories.

On the passive side, large-cap index funds and ETFs received nearly 90% of net inflows in the segment, clearly indicating that investors prefer well-established benchmarks to develop their portfolios. Passive mid-cap and small-cap options also experienced modest inflows, suggesting broader market engagement.

The report also noted that passive equity flows overall accounted for ₹21,700 crore, a healthy portion of the total equity inflows worth ₹133,000 crore in the quarter. “As markets mature and awareness grows, more investors are combining passive efficiency with broad diversification to optimise long-term returns,” the report said.