India's Mutual Fund Industry faced a significant slowdown in 2025, with fresh investor additions and new fund collections declining sharply compared to the previous year. The industry added only 5.8 million unique investors through November 2025, representing nearly half of the 10.6 million investors who joined in 2024.

Sharp Decline in New Investor Onboarding

The pace of new investor acquisition has moderated considerably after three consecutive years of strong expansion. This slowdown follows a period when equity markets delivered exceptional returns and retail participation surged across various investment segments.

NFO Collections Witness Steep Drop

New Fund Offer collections experienced an even more pronounced decline, falling to ₹63,631 crore in 2025 from ₹1.18 lakh crore in 2024. Active equity NFOs were particularly affected, raising only ₹29,148 crore through 51 launches compared to ₹91,118 crore mobilized via 69 active equity NFOs in the previous year.

This decline indicates reduced appetite for new thematic and sectoral fund launches, especially amid corrections in mid- and small-cap stocks that have disappointed many investors.

Industry Expert Perspectives

Akhil Chaturvedi, Chief Business Officer at Motilal Oswal Asset Management, explained that markets fundamentally depend on confidence and performance. "Over the last 12 months, many investors have not made money, with returns in several pockets turning negative. This has naturally led to a phase of time correction," he noted.

Sandeep Bagla, Chief Executive Officer of Trust Mutual Fund, observed that domestic equity mutual fund flows have clearly moderated during the year. "Mid- and small-cap segments have disappointed investors, reducing enthusiasm, especially among do-it-yourself investors. SIPs remain the only resilient source of flows, along with a few sporadic NFOs. Beyond that, incremental flows into equity schemes have been largely negligible," he said.

SIP Inflows Remain Resilient

Despite the overall slowdown in lump-sum and NFO investments, Systematic Investment Plans (SIPs) continue to provide stability to the industry. SIP inflows reached ₹3.03 lakh crore in 2025, marking a strong year-on-year increase and accounting for a growing share of overall equity inflows.

This trend underscores a behavioral shift among retail investors toward disciplined, long-term investing rather than tactical lump-sum investments. The resilience of SIP flows demonstrates investor commitment to systematic wealth creation despite market volatility.

Market Outlook and Future Expectations

Industry experts believe future market direction will depend on several global factors, including:

• Foreign institutional investor behavior
• China's earnings trajectory
• Clarity on international trade tariffs
• Geopolitical developments

As corporate earnings are expected to improve over the next two quarters and geopolitical and tariff-related uncertainties ease, the second half of 2026 is anticipated to be more constructive. Experts expect valuations to become more reasonable and growth to provide stronger support after June 2026.

The mutual fund industry has formally approached the Finance Ministry with a significant request to restore indexation benefits on debt mutual funds, according to sources familiar with the discussions. This proposal forms part of a comprehensive set of capital market recommendations presented during recent pre-budget consultations.

Industry Advocacy for Tax Benefits

The restoration of indexation benefits represents a key priority for the mutual fund sector in their engagement with government officials. These benefits, when available, allow investors to adjust their investment cost for inflation, potentially reducing the tax burden on capital gains from debt fund investments.

Pre-Budget Consultation Framework

The discussions took place as part of the government's regular pre-budget consultation process, where various industry stakeholders present their recommendations and concerns. The mutual fund industry utilized this platform to advocate for policy changes that could enhance the attractiveness of debt mutual fund investments.

Broader Capital Market Proposals

The indexation benefits request is part of a wider set of capital market proposals discussed during these consultations. This suggests the industry has presented multiple recommendations aimed at improving the overall investment environment and regulatory framework for mutual funds.

Policy Implications

The outcome of these discussions could have significant implications for debt fund investors and the broader mutual fund industry. Restoration of indexation benefits could potentially make debt mutual funds more tax-efficient investment vehicles, which might influence investor preferences and fund flows in the debt fund segment.

The mutual fund industry's efforts to seek favorable tax treatment for investors highlight the ongoing dialogue between the financial sector and policymakers. As the pre-budget consultations progress, stakeholders will be closely watching for any indications of potential policy changes that may affect the taxation of debt mutual funds and other investment vehicles.