India’s Retail Investors Are Thinking Long Term, Finally

Indian investors are increasingly choosing mutual funds to invest in the stock market instead of investing directly on their own.

A new research paper by the market regulator Securities and Exchange Board of India (Sebi) showed that nearly 79 per cent of household money flowing into India’s securities market in FY25 went into mutual funds. Out of total household investments worth Rs 6.91 lakh crore in the securities market, mutual funds attracted around Rs 5.44 lakh crore.

The findings come at a time when systematic investment plan (SIP) registrations are scaling new highs, retail participation has widened beyond metros, and younger investors are increasingly treating mutual funds as a core savings tool rather than a market product.

The study, prepared by Sebi officials in consultation with the Reserve Bank of India (RBI) and the Ministry of Statistics and Programme Implementation (MoSPI), has also revised the methodology used to calculate household savings flowing into securities markets.

The updated method now includes a wider range of investments such as secondary market transactions, Real Estate Investment Trusts (Reits), Infrastructure Investment Trusts (InvITs) and private debt placements.

Why Are Mutual Funds Dominating Household Investments

The biggest takeaway from the data is not just that mutual fund inflows rose. It is the sheer scale at which they outpaced every other investment avenue.

Primary market mutual fund investments surged from Rs 1.66 lakh crore in FY23 to Rs 5.13 lakh crore in FY25. Secondary market mutual fund investments, including exchange-traded funds (ETFs) and closed-ended schemes, jumped to Rs 30,885 crore in FY25 from less than Rs 10,000 crore in each of the previous two years.

Overall, household investments linked to mutual funds crossed Rs 5.43 lakh crore in FY25. In simple terms, nearly four out of every five rupees invested by households in the securities market went into mutual funds.

For a growing number of first-time investors, SIP instalments now go out every month just like EMIs, insurance payments or electricity bills. Much of this behavioural shift has happened after the pandemic-era bull market, which introduced millions of new investors to equities.

What Does This Say About Retail Investor Behaviour

The data suggests that retail investors are becoming more disciplined and long-term focused in the way they invest. Interestingly, Indian households continued to be net sellers in the secondary equity market for the third straight year. Net flows into direct equities through secondary markets stood at negative Rs 54,786 crore in FY25 after a negative Rs 69,329 crore in FY24.

But this does not necessarily mean retail investors are abandoning equities altogether.

Instead, investors seem to be booking profits in individual stocks and are channelling fresh long-term investment through mutual funds. In other words, retail participation in equities is still growing, but more investors now prefer mutual funds over directly picking stocks.

Market volatility is also a likely influencer for this preference. Over the past year, investors have faced uncertainty around global interest rates, geopolitical tensions and sharp swings in stock prices due to expensive valuations in pockets of the market and uneven corporate earnings. In such conditions, diversified mutual funds offer a relatively safer and simpler way to invest in equities.

Are Direct Stock Investments Losing Appeal

Not entirely. The data actually shows that Indian households are still actively investing in the stock market, especially through the primary market.

Household investments in equities through initial public offerings (IPOs), rights issues and preferential allotments jumped to Rs 95,139 crore in FY25, more than double the Rs 46,879 crore seen a year earlier.

India’s IPO market has remained very active over the past two years, with strong participation from retail investors in several public issues. Many investors still seem willing to invest in new-age companies and fast-growing sectors through IPOs, even if they are trading less in the broader secondary market.

What Role Did SIPs Play In This Surge?

SIPs have become a major driver of India’s mutual fund boom. Regular monthly SIP inflows have helped mutual funds attract steady retail money even during periods of market volatility. More investors now see SIPs as a long-term wealth creation tool instead of a way to make quick profits. This investing habit has grown stronger due to easier digital account opening, rising financial awareness and increasing participation from smaller cities.

Sebi’s revised methodology also gives a broader picture of the growing breadth of retail participation across investment products. Apart from equities and mutual funds, the framework now includes investments through Reits, InvITs, private debt placements and other market-linked instruments that were earlier excluded from savings calculations.

Is India’s savings culture changing?

Gradually, yes. The revised Sebi data shows that household savings flowing into the securities market almost doubled to Rs 6.91 lakh crore in FY25 from Rs 3.58 lakh crore in FY24. This suggests that more Indians are moving beyond traditional savings avenues and investing money into market-linked financial products.

Gold and real estate still account for a large part of household savings. But financial assets are clearly becoming more popular, especially among younger investors and salaried households.

As Sebi noted in its paper, “financial assets are gaining popularity due to their potential for higher returns and liquidity.” The regulator also said the revised methodology “better captures the shift in household savings from traditional physical assets (gold, real estate) toward financial instruments.”

The revised calculations show that household savings through securities markets rose to 2.17 per cent of gross domestic product (GDP) in FY25, as against 1.71 per cent under the earlier methodology. Gross savings-to-GDP also improved to 34.94 per cent.

This shift matters for the broader economy as well. When household money moves into formal financial markets, it helps companies raise capital more efficiently, deepens domestic liquidity and reduces excessive dependence on foreign investors.

Frequently Asked Questions

1. Why are Indian households investing more in mutual funds?

Investors are increasingly preferring mutual funds because they offer diversification, professional management and easier long-term investing through SIPs, especially during volatile market conditions.

2. How much did households invest through mutual funds in FY25?

According to SEBI’s revised data, household mutual fund investments reached around Rs 5.44 lakh crore in FY2024-25.

3. What does this trend mean for India’s economy?

Higher financial savings through securities markets can deepen domestic capital markets, improve liquidity and reduce dependence on foreign capital flows over time.