In February 2025, mutual funds' net buying of domestic equities dropped sharply, to a multi-year low, after what had been, just a month before, one of the strongest deployment months in recent memory

Multiple things converged at the same time, and that convergence is what makes February 2025 worth studying.

February saw benchmark BSE Sensex slump 5.55% while Nifty 50 fell by 5.89%. The conventional wisdom is that fund managers love a correction. So why weren't they deploying aggressively?

I think the answer has a few layers.

When inflows slow, there's simply less fresh cash to put to work. Fund managers can't conjure liquidity they don't have. The AUM of equity funds shrank from ₹29.78 lakh crore in January to ₹28.77 lakh crore in February.

Fund managers had been sitting on elevated cash levels coming into this period. When markets correct sharply, the instinct, even for professional managers, is to wait and see whether the correction is a dip or the beginning of something deeper.

The last issue is the SIP stoppage problem.

In February 2025, the SIP stoppage ratio crossed 100% for the second month in a row. SIP money is their most predictable, most reliable source of dry powder. When the stoppage ratio goes above 100%, the future deployment pipeline becomes uncertain. Uncertain pipelines make fund managers more conservative.

In December 2024, thematic funds alone pulled in over ₹15,000 crore. By mid-2025, that number had collapsed to just ₹476 crore. Thematic funds had become the NFO machine of the Indian mutual fund industry.

Despite everything, the net inflow into open-ended equity funds stayed positive for the 48th consecutive month, and SIP contributions remained strong at ₹25,999 crore. The SIP culture, whatever its imperfections, has created enough behavioral inertia to keep the floor of flows intact.