The old kings of India’s stock markets are being challenged. The centre of gravity is shifting to retail investors, and the engine driving this change is the humble SIP.

Month after month, we have seen SIP inflows breaking records, hitting an all-time high of Rs 28,464 crore in July 2025, as households across the country move their wealth into equities and long-term investment products.

This domestic firepower has helped steady Indian markets in a time of global volatility. When ‘hot’ foreign money has pulled out, retail investors have held the line, keeping the markets resilient and more independent. DIIs have now surpassed FIIs in shareholding of Indian equities, with their stake now at a record high.

Investors are also getting bolder. While large-cap stocks still get attention, more money is flowing into high-risk, high-reward small-caps and specialised theme-based funds. 

This trend is worrying insiders watching the market, such as S. Naren, CIO of ICICI Prudential Mutual Fund, who has warned against this all-in bet on equities. “Despite repeated advice from fund houses to diversify into debt or REITs, Indian households remain overwhelmingly focused on equities,” he said. 

So is this a story of empowerment or overconfidence? In this edition of COTW, we dig into where retail money is moving, and how the top funds are doing. 

Beyond the blue chips: small, flexi, and thematic funds take center stage

The shift in mutual fund preferences is the story of an Indian investor who is growing bolder, and more sophisticated. The appetite for stocks is strong – equity mutual funds saw record inflows of Rs 42,673 crore in July 2025, up 81% from June. 

But the real story here is where the money is going. Between Q1 2021 and Q2 2025, asset allocation has shifted away from the large caps, with their share declining from 28% to 17% as investors moved away from stability in search of high growth. Multi-cap funds tripled their share from 3% to 9%; thematic and small cap funds are also gaining fast.

A mood-shift post-Covid

There has been a break in how investors behaved, before Covid and after Covid. When investors returned to equities post pandemic, sector and theme based funds were the new favourites, as industries like technology, consumer discretionary, and renewable energy zoomed. Gold funds have also become a go-to safe haven amid global uncertainty.

Fueled by eye-popping returns (the Nifty Smallcap 250 index is up 248% in five years), a wave of FOMO—fear of missing out—has gripped Indian investors. As one expert notes, "A lot of retail investors continue to chase past performance" – and the performance of small- and mid-cap funds has been hard to ignore. 

Flexi-cap funds that can invest across company sizes and choose international stocks, like the popular Parag Parikh Flexi Cap Fund, have seen massive inflows. These funds offer diversification and allow fund managers to hunt for opportunities anywhere in the market. Small-cap and flexi-cap funds together attracted over Rs 26,000 crore in the June 2025 quarter.

A GST boost might be next

Mutual fund inflows have slowed relatively in 2025, but the AUM remains at an all-time high. But another new catalyst is on the horizon: the newly announced GST reforms.

These reforms slash GST rates into two simplified slabs of 5% and 18%, and cut taxes on essentials so that industries like FMCG, autos, healthcare, and cement are set to benefit. This will lift consumption and corporate earnings, while putting more disposable income in the hands of ordinary Indians. The shift could fuel even more money into SIPs, accelerating the trends we are seeing today.

Kranthi Bathini, Equity Strategist at WealthMills Securities, says, “We've already seen consumption-oriented stocks moving up after the GST reduction announcement. Mutual funds focused on this space could also benefit in the medium to long term.”