Equity Fund Flow significance: Retention and Materiality in Sep-26

EVALUATING EQUITY FUND FLOWS ON RETENTION AND MATERIALITY

September 2026 saw 30.6% MOM increase in equity fund flows to ₹38,307 crore. The driving themes were alpha hunting and market cap diversification. We also look at flow significance from two perspectives. The first is retention. Here we have use ratio of net flows to gross flows into equity funds as a proxy for flow retention. This ratio captures how much of the flows were actually retained by that category, net of redemptions.

The second test of significance we look at is materiality. We use the ratio of net flows to net AUM as a proxy for flow materiality. After all, the net flows must be seen in the context of the net AUM. To get an overall view of flow significance, we use combined ranking by retention and materiality into our overall equity fund rankings for September 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 51.19% for September 2026 and has significantly improved compared to 39.84% in August 2026. This is a positive signal overall and shows more sticky flows into equity funds.

• 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 1.02% in September 2026, and has significantly improved from 0.75% in August. This could also be partly attributed to the compression in AUMs amid falling equity prices.

• For the combined rank, the arithmetic average of the retention rank and the materiality rank is calculated. The funds with the best combined rank exhibit the best funds in terms of flow significance. Combined rank is a theoretical number. The flow significance examines the quality of flows, more than the quantum of flows.

INTERPRETING THE 3 LEVELS OF CLASSIFICATION IN SIGNIFICANCE RANK?

• The top 4 funds shaded in yellow are the fund categories where the flows are the most significant in terms of the combined rank. These funds have typically scored high on retention of flows and also scored high on materiality of flows. These show the segments that are most in demand from the equity mutual fund investors.

• If you look at the top-4 funds (small cap, 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. While small cap and mid-cap funds represent alpha; multi-caps and large & mid-caps are about diversification.

• The next-5 shaded in light green are the cases where the flows are modestly significant among equity funds. It includes fund categories like Sector Funds, Flexi Cap Funds, Value Funds, Focused Funds and Dividend Yield Funds. Sector funds have lost their allure recently, and for flexi-caps it is more about the large AUM base.

• In these funds, the net flows are still positive but the significance of the flows is progressively going down. Value Funds, Focused Funds, and Dividend Yield Funds are still small in size. In case of sector funds, consistent underperformance has been the reason for loss of interest. Flexi Cap funds have had fund manager leeway issues.

• The third category (shaded in blue) are where the net flows are either in the negative, or where the flows are not too significant. They have either been low on investor interest for or have seen interest levels come down. Large cap funds and thematic funds have seen demand come down sharply amid the volatility.

• Each of the category in the bottom bracket has its story. Large cap funds suffered from Kurtosis effect while thematic funds struggled with a higher base. In the case of contra funds, positioning has been a big challenge. Of course, ELSS funds have had a struggle since the launch of new tax regime (NTR), as it lost its core purpose.

At a macro level, the good news is that the retention and the materiality of flows into equity funds have seen an improvement in September over August 2026.