By buld_online 
As Indian equity markets rallied in May 2025, investors reacted with a wave of redemptions from mutual funds, revealing deep-rooted behavioral biases that continue to shape retail investment patterns. According to data released by the Association of Mutual Funds in India (AMFI), the net-to-gross equity inflow ratio fell sharply to 33.59%, the lowest seen in over a year, as withdrawals spiked despite a positive market outlook.
This drop indicates a mismatch between inflows and redemptions. In May, gross inflows into equity mutual funds stood at Rs 56,604 crore, while redemptions shot up to Rs 37,591 crore, leaving net inflows at just Rs 19,013 crore. This compares starkly to February 2024, when the net inflow stood at Rs 29,303 crore on gross inflows of Rs 54,429 crore, resulting in a healthier 53.84% ratio.
The sudden rise in redemptions is a textbook case of anchoring bias and loss aversion. Investors tend to hold onto their investments when markets fall below a perceived peak, reluctant to realise losses.
One such bias is anchoring bias, where investors are reluctant to redeem when portfolio values fall below previous highs. “As a result, investors tend to hold onto their funds during downturns, hoping to recoup paper losses. Another is loss aversion, where those who invested closer to market peaks resist selling at a loss, waiting for recovery,” Nilesh D Naik, Head of Investment, Share.Market, said on Tuesday.
But when markets recover and near or surpass those previous highs, they often rush to redeem, locking in profits or exiting positions out of fear of another downturn.
From October 2024 to February 2025, when the markets were more volatile, the net-to-gross inflow ratio stayed relatively strong—averaging over 53%—as investors avoided booking losses. But as the market started rebounding from March, redemptions rose, and the ratio dropped to 44.37% in March, 42.77% in April, and further down to 33.59% in May.
According to data from the Association of Mutual Funds of India (AMFI), net inflows into equity mutual funds fell by approximately 22% on a monthly basis in May, reaching a one-year low of Rs 19,013.12 crore. Despite this decrease, the total net assets under management (AUM) for the mutual fund industry rose to Rs 72.20 lakh crore in May, up from Rs 69.99 lakh crore in April. Overall, the industry experienced net inflows of Rs 29,108.33 crore during the month of May.
Jatinder Pal Singh, CEO of ITI Mutual Fund, noted that the decrease in net equity inflows can be traced back to various factors. These include the surge in the stock market in May 2025, as well as a potential phase of consolidation or profit booking by investors. Singh also highlighted the impact of rising global volatility, which has been exacerbated by geopolitical tensions stemming from India’s Operation Sindoor against Pakistan and ongoing worries about global inflation. This has further fueled a risk-off sentiment among certain investors.
“Equity inflows moderated to Rs 19,013 crore this month, reflecting cautious investor sentiment amidst market volatility. Such phases often witness a natural reallocation towards hybrid and arbitrage schemes, offering a more balanced approach during uncertain times. The trend highlights the maturing investment behaviour among Indian investors,” said Venkat N Chalasani – Chief Executive at AMFI.
If the market maintains its upward momentum, redemptions may continue in the short term. However, stronger sentiment could eventually lead to higher gross inflows, helping normalize the net-to-gross inflow ratio in the coming months.
This cycle highlights the need for greater awareness about behavioral finance. Experts urge retail investors to focus on long-term goals instead of reacting emotionally to market movements, especially during sharp rallies or downturns.