Bhubaneswar, Oct 14: September was a month of contradictions for India's mutual fund industry. While global uncertainty triggered a sharp correction in the stock market, retail investors continued to invest through systematic investment plans (SIPs), equity funds attracted fresh money and exchange-traded funds (ETFs) witnessed a surge in inflows. At the same time, heavy withdrawals from debt schemes and falling share prices dragged down the industry's overall assets under management (AUM).

The developments highlight how global events influence not only stock prices but also investor behaviour and the movement of money across asset classes.

Global developments set the tone

The Nifty 50 fell 6.1% in September, while the Sensex declined 5.8%, marking their steepest monthly falls since March. Rising geopolitical tensions, surging crude prices and concerns over higher global interest rates weighed down on sentiment. Foreign portfolio investors withdrew around $2.7 billion from Indian equities during the month.

The impact on India is particularly significant because higher crude prices can increase the country's import bill, fuel inflation and weaken the rupee. Meanwhile, rising US bond yields make relatively safer dollar-denominated investments more attractive, potentially drawing foreign capital away from emerging markets such as India.

These pressures can push share prices down even when the long-term prospects of individual companies remain intact.

SIPs withstand the market correction

Despite the volatility, equity mutual funds attracted net inflows of about Rs 38,307 crore in September, up around 31% from August. Monthly SIP contributions touched a record Rs 32,490 crore, indicating that investors continued their regular investments rather than withdrawing en masse.

Small-cap funds attracted Rs 9,039 crore, followed by mid-cap funds at Rs 7,835 crore. Flexi-cap funds received Rs 6,702 crore, while large-cap funds returned to positive inflows after two consecutive months of outflows.

However, continued investments do not mean investors escaped losses. The mid-cap index fell 7.6% during September, while the small-cap index declined 3.4%. SIPs help spread investments across different market levels, but they cannot eliminate market risk.

Valuations prompt a rethink

The sustained appetite for mid and small-cap funds comes with a caveat. Fund managers are concerned that some stocks in these segments may be priced too optimistically relative to their earnings prospects. If corporate profits fail to meet expectations, expensive stocks can face sharper corrections.

This has strengthened the case for selective stock-picking and diversified portfolios. Larg e-cap stocks may offer relatively more attractive valuations in parts of the market, while flexi-cap and multi-asset strategies give fund managers greater flexibility. Yet September's flows show that investors have not abandoned smaller companies, which they continue to see as potential sources of growth.

ETFs emerge as another investment channel

ETF inflows also rose sharply. Equity ETFs attracted Rs 9,960 crore, up 38% from August. Gold ETFs received Rs 4,451 crore in September, a 71% month-on-month increase, while silver ETFs drew Rs 1,974 crore, up 55% from August.

The figures suggest investors were seeking different kinds of exposure at the same time: equity ETFs offered market-linked investments, while gold and silver provided alternative avenues amid geopolitical and economic uncertainty. Precious metals can diversify portfolios, although their prices are also volatile.

Why did total assets fall?

The industry's AUM declined 5.1% to Rs 82.49 lakh crore in September from Rs 86.94 lakh crore in August. Debt mutual funds recorded net outflows of Rs 1.83 lakh crore, largely from liquid and money-market schemes, which businesses and institutions use to manage short-term cash. The industry, as a whole, recorded net outflows of Rs 1.33 lakh crore. Falling equity valuations added to the decline.

The message for ordinary investors is clear: global events can affect portfolio values even when domestic investment continues. Regular investing, diversification and attention to valuations matter more than chasing whichever fund category attracts the most money in a particular month.