Sectoral & Thematic Funds See Over 50% Fall in Inflows in August; Investors Shift to Diversified Equity

In August 2025, sectoral and thematic mutual funds in India experienced a sharp decline in inflows, dropping 59% compared to July, according to data from AMFI. Inflows into these concentrated funds fell to ₹3,893 crore from ₹9,426 crore a month earlier. The steep fall is attributed to fewer large New Fund Offers (NFOs), heightened profit-booking, and a rotation of investor interest. 

Steep Decline in Sectoral & Thematic Fund Inflows

One key change is that NFO contributions plummeted: where they made up 41% of mobilised funds in July, they accounted for just 13% in August. Additionally, redemptions surged—in August they represented 64% of total fund mobilisation, up from 48% in July. 

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Diversified Equity Categories Show Mixed Trends

In contrast, diversified equity categories showed more stable inflow behaviour. Large-cap funds saw inflows of ₹2,834 crore in August (up from ₹2,125 crore in July). Mid-cap funds had modest growth of 3%, while small-cap funds saw a decline of 23%. Flexi-cap funds edged up slightly by 0.3%, but focused/value/contra funds dropped by 28% and 22%, respectively. Multi-cap funds also saw a 20% fall. 

Expert Opinions and Fund Performance Highlights

Experts suggest that investor sentiment is shifting away from high-risk concentrated plays. Volatility and rich valuations in sectoral/thematic categories are prompting many to prefer broader exposure. Analysts from firms such as Fisdom and others recommend that sectoral/thematic exposure be limited, perhaps to 10-15% of equity portfolios, while core allocations be focused on stable large-cap, flexi-cap, and multi-cap funds. 

Some sectoral/thematic funds still delivered strong returns in August. Notable performers included Nippon India Taiwan Equity Fund (approximately 13.36%), Mirae Asset Hang Seng TECH ETF FoF and Mirae Asset Global Electric & Autonomous Vehicles Equity Passive FoF (about 12.75% and 11.95%, respectively). On the other hand, some funds posted marginal gains or small losses; for example, ICICI Pru India Opp Fund and Kotak Manufacturing in India Fund returned ~0.03%, while others, such as Sundaram Fin Serv Opp Fund, lost about 4.25%. 

Conclusion

August witnessed a clear cooling off in investor appetite for sectoral and thematic mutual funds in India, driven by reduced NFO activity and raised concerns over market volatility. Inflows dropped dramatically, while diversified equity categories held up relatively better. Experts suggest cautious exposure to thematic funds, reserving them for more experienced investors, and emphasise core portfolio stability through large-cap, flexi-cap, and multi-cap funds.