Mutual Funds: Domestic mutual funds expand market share, break record ownership

Mutual Funds: The holdings of domestic investors, especially mutual funds, in India's equity market are steadily strengthening. According to an NSE report, domestic mutual fund ownership has reached a record high of 10.9%, while FPIs' share has fallen to a 15-year low of 16.9%. SIP inflows, the growth of domestic institutional investors, and a strong macroeconomic environment have boosted domestic participation in the market. Investment flows and economic indicators are providing renewed strength to the market.

Mutual Funds: The role of domestic investors in India's equity market is rapidly strengthening. Mutual funds, in particular, have increased their hold to such an extent that they have now achieved record ownership in the market during the second quarter. The National Stock Exchange (NSE)'s November 2025 Market Pulse Report shows that the share of domestic mutual funds (DMFs) in listed equities has now reached 10.9%, the highest level for the ninth consecutive quarter. In contrast, the share of foreign portfolio investors (FPIs) has fallen to 16.9%, the lowest in 15 years.

Significant Surge in Domestic Mutual Fund Investments

Equity investments by mutual funds reached a record high in the second quarter of FY 2025-26. According to the report, domestic mutual funds invested ₹1.64 lakh crore during this period, the highest quarterly investment ever. This was largely driven by steadily increasing retail inflows through SIPs, which averaged ₹28,697 crore per month. Ownership of active schemes increased to 9%, while that of passive funds remained stable at 2%.

Domestic Institutional Investors Outweigh Foreign Investors

For the fourth consecutive quarter, domestic institutional investors (DIIs) outweighed foreign investors. This situation was last seen in 2003. Domestic mutual funds increased their holdings in large financial stocks and mid-tier consumer discretionary companies. At the same time, their underweight position in consumer staples deepened as competition from online and fast-track commerce companies continues to grow. Their stance on the commodities sector remained negative, while the outlook on the IT sector was changed to neutral.

Domestic Investors' Strongest Hold

Direct retail ownership remained stable at 9.6%, but when combined with mutual fund investments, the total share of domestic investors reached 18.75%. This is the highest level in the last 22 years. For the fourth consecutive quarter, domestic investor holdings exceeded those of FPIs, completely eliminating the 11% gap seen in 2014.

Strong Macroeconomic Environment

Equity values ​​declined by ₹2.6 lakh crore in the second quarter of FY2025-26 due to market slowdown, but domestic equity wealth has increased by ₹53 lakh crore since April 2020, with a five-year CAGR of 29.8%. Economic indicators also point to stability. Inflation fell to a historic low of 0.3% in October 2025, boosting consumer purchasing power.

IIP Improves

Industrial production (IIP) also improved, growing at a 4% annual rate. A sharp 40.9% increase in vehicle registrations and an 11.5% growth in bank credit provided a strong foundation for economic activity. India also performed well on the external front, with foreign exchange reserves rising to $690 billion. Although higher gold imports widened the trade deficit, the overall environment remained stable. Based on these circumstances, market expectations of a 25 basis point repo rate cut by the RBI at the December Monetary Policy Committee meeting have also increased.

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