Equity Fund Flow significance: Retention and Materiality in August 2026

A NEW WAY TO LOOK AT EQUITY MUTUAL FUND FLOWS

How do you evaluate the colour and quality of the flows into mutual funds in any month. For August 2026, active equity funds saw net inflows of ₹29,329 crore, largely dominated by small cap, mid-cap, and flexi-cap funds in terms of flows. More than just the flow number, it is the flow significance that really matters from a sustainability standpoint.

Now, significance can be measured in terms of the retention as well as in terms of the materiality. Here we have used the ratio of net flows to gross flows into equity funds as a proxy for flow retention. Also, the ratio of net flows to net AUM has been used as a proxy for flow materiality. Both are expressed in percentage terms.

Finally, you get a credible measure of flow significance when you combine retention and materiality. We have used the combined ranking method to factor in both the aspects of retention and materiality into our equity fund flow rankings for August 2026. The table below is a ranking on this combined rank score.

Data Source: AMFI (# NF – Net Flows; GF – Gross Flows)

THE METHODOLOGY - HOW WE RANKED EQUITY FUND FLOWS

• Equity funds were first ranked by retention, which is the ratio of net flows to gross flows. For equity funds as a whole, this retention ratio stood at 39.84% for Aug-26.

• Then these equity funds were ranked by materiality, which is the ratio of net flows to net AUM. For equity funds as a whole, this materiality ratio stood at 0.75%.

• For the combined rank, the arithmetic average of the retention rank and the materiality rank is taken into account. The funds with the best combined rank exhibit the best funds in terms of flow significance. Combined rank is a theoretical number.

INTERPRETING THE 3 LEVELS OF CLASSIFICATION IN SIGNIFICANCE RANK?

• The top five funds shaded in yellow are the fund categories where the flows are the most significant in terms of the combined rank. These funds score high on retention of flows and also score high on materiality of flows.

• If you look at the top-5 funds (small cap, contra, multi-cap, mid-cap, and large & mid cap); the underlying theme is either alpha hunting or market cap diversification. These have been the dominant themes for retail investors in the recent past.

• The next-4 shaded in light green are the cases where the flows are only modestly significant among equity funds. It includes fund categories like focused funds, value funds, and flexi-cap funds where the customer proposition is still quite vague.

• In these funds, the net flows are still positive but the significance of the flows is progressively going down. Thematic funds and flexi-cap funds are cases in point, which lost out on the high interest levels due to active manager underperformance.

• The third category (shaded in blue) are where the net flows are actually in the negative. They have either been low on investor interest for some time or have seen interest levels go down. Large caps and sector funds have seen demand come down.

• Clearly, large caps have suffered from Kurtosis effect while dividend yield plays have underperformed on price. In the case of sector funds, the lure of the idea is fading. Of course, ELSS funds have had a long struggle since the shift to new tax regime (NTR).

August 2026 has been an interesting month for equity fund flows. The shift away from large caps and sectoral funds towards small caps and multi-caps is quite evident.