Motilal Oswal Financial Services

Sector Update | 29 September 2025

Sector update | Financials

Mutual Funds

Strong trends in SIP flows

continue (INR b)

SIP traction slows down as returns dip; debt segment

still weak



We interacted with a few large mutual fund distributors (having an AUM of INR10b+),

a large B2B2C MF distributor, and institutional sales representatives to analyze

customer behavior in the prevailing market conditions.



Retail activity has seen some moderation on MF flows, considering that the 1-year SIP

returns have been negative. The trend is more pronounced with the direct channel.

Distribution-led models have experienced strong trends in the recent past. However,

competitive intensity among B2B2C channels is increasing, leading to higher sharing

with distributors.



Source: MOFSL, AMFI



Against the previous corrections in markets, wherein lump sum flows used to gather

pace, this time the activity on lump sum is on the lower side.

On the debt side, strong traction is yet to pick up in spite of the cut in interest rates

owing to the adverse taxation rules.

Structurally, we remain positive on the mutual fund-related space – AMCs,

distributors, intermediaries, and wealth managers. Our top picks in the space include

ABSL AMC, CAMS, and Nuvama.

Redemption trends steady

Equity + Hybrid redemptions as %

of AUM

Retail SIP trends weak in the recent past, more so from fintechs



Source: MOFSL, RBI



Given the weak market performance (Nifty down 4.5% over the past year), SIP

momentum among retail investors has moderated. New SIP registrations in

August 2025 were the lowest since April 2025, although encouragingly, SIP

closures have trended down, with August marking the lowest level since

November 2024.

In previous market corrections over the past five years, lump-sum flows tended

to accelerate as investors viewed declines as long-term opportunities. However,

under the current macro backdrop—characterized by tariff uncertainty and

geopolitical tensions—investors appear more cautious and are mainly staying on

the sidelines.

Operationally, disruptions on BSE StAR MF—the dominant transaction platform

for fintech players—led to multi-hour to multi-day outages in June and August

2025, blocking purchases, redemptions, and new SIP creations on apps such as

Coin. These issues likely dampened inflows for fintechs during the period.

From a business model perspective, fintechs rely heavily on digital-led customer

acquisition (advertising, incentives, and referral programs). Rising customer

acquisition costs in recent quarters, coupled with mounting profitability

pressures, have forced platforms to reduce subsidized marketing expenses,

which in turn has slowed incremental SIP additions.

Additionally, with the festive season approaching and GST rate cuts supporting

consumption demand, household spending is likely to take precedence over

financial investments. On the distribution front, after the initial round of

commission reductions by some leading AMCs, there has been little change in

commission structures in recent months.

Research Analyst – Prayesh Jain

(Prayesh.Jain@MotilalOswal.com) |

Nitin Aggarwal

(Nitin.Aggarwal@MotilalOswal.com)

Research Analyst – Kartikeya Mohata

(Kartikeya.Mohata@MotilalOswal.com) |

Muskan Chopra

(Muskan.Chopra@MotilalOswal.com)

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

29 September 2025

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Sector update | Financials

Debt flows remain muted



Although the RBI has reduced policy rates, much of the easing had already been

priced in, with yields softening ahead of the cuts. As a result, investors entering

debt mutual funds post-cut have seen limited duration gains. Moreover,

concerns around a potential re-steepening of the yield curve or foreign outflows

pressuring the INR and government securities have further dampened appetite

for long-duration funds.

Large institutions and family offices continue to favor allocations at the shorter

end of the yield curve, reflecting a preference for lower volatility and higher

visibility on returns. At the same time, competition from alternative products—

corporate deposits, bonds, and bank fixed deposits—has intensified. Investors

remain reluctant to absorb the ~25bp cost differential associated with debt

mutual fund structures.

While portfolio diversification remains a structural advantage for mutual funds,

this benefit is more likely to be recognized once there is greater clarity on a

sustained downward trajectory in interest rates. In parallel, corporates, once

significant allocators to liquid and ultra-short-term funds, are increasingly shifting

to direct placements in commercial paper (CP) and certificates of deposit (CD).

These instruments offer transparent yields, superior liquidity, and eliminate fund

expense ratios, making them more attractive in the current environment.

The new wave of mutual fund distributors looks very different from legacy IFAs.

The median age is now ~35 years, and expectations are closer to those of a

consumer tech user: they want iPhone-level user experience, seamless

onboarding, and high-quality tech support. This makes platform design, digital

workflows, and mobile-first interfaces crucial in attracting and retaining

distributors. B2B2C platforms that offer gamified dashboards, smart analytics,

and 24x7 digital servicing are better placed to win over this younger cohort.

The market is broadening beyond metros: in the last five years, the share of

distributors outside the top 30 cities has risen from 47% to 56%. This trend makes

branch-led servicing unfeasible, given that a branch traditionally covers only a 5–10

km radius. Instead, digital onboarding, remote training, and centralized call centers

(e.g., 70-seater setups) are replacing physical branch dependency. B2B2C platforms

thus become the critical “digital bridge” that allows AMCs to scale distribution in

Tier-2/3/4 towns without massive brick-and-mortar costs.

For distributors, three factors dominate: convenience of tech, visibility through

marketing support, and clarity/competitiveness of commissions. While paying

slightly higher commissions is a bonus, the real differentiator is the ease of

business—quick transaction processing, compliance automation, and real-time

client portfolio analytics. Platforms that bundle tech + marketing + fair

commissions are emerging as the preferred partners.

Though the distributor onboarding trend has cooled recently, structural drivers

remain supportive. GST credits and income-tax benefits for distributors could

materially improve economics. Meanwhile, option money and gaming-sector

liquidity represent potential incremental pools of capital that could shift toward

mutual funds with the right incentive structures. In the medium term, these

macro/policy nudges will add meaningfully to the B2B2C distribution

ecosystem’s depth.

B2B2C channel showing marked shifts



29 September 2025

Sector update | Financials

Exhibit 2:

Equity redemptions remain soft, indicating

stickiness

Equity + Hybrid redemptions as % of AUM

8.0%

6.0%

4.0%

2.0%

0.0%

Exhibit 3:

Ex-SIP net inflows have been steady in the past

few months

Net flows - Ex SIP (INR b)

Source: MOFSL, AMFI

*Gross inflows in equity and hybrid, less SIP inflows and

redemptions from equity and hybrid NFOs

Exhibit 4:

Healthy growth in SIP AUM…

SIP AUM (INR t)

Exhibit 5:

…with SIP monthly flows trending upward

SIP flows (INRb)

Source: MOFSL, AMFI

Exhibit 6:

Sustained rise in the number of SIP accounts…

SIP Accounts (m)

102

Exhibit 7:

…as the incremental opening of SIP accounts picks

up at a faster pace than the closure rate

20.0

15.0

New SIP registered (m)

SIP discontinued (m)

10.0

5.0

0.0

Source: MOFSL, AMFI

Apr’25 saw one time reset of data for stricter implementation of SIP

closure

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

29 September 2025

Sector update | Financials

NOTES

29 September 2025

Sector update | Financials

Explanation of Investment Rating

Investment Rating

BUY

SELL

NEUTRAL

UNDER REVIEW

NOT RATED

Expected return (over 12-month)

>=15%

< - 10%

< - 10 % to 15%

Rating may undergo a change

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall be within following 30 days take

appropriate measures to make the recommendation consistent with the investment rating legend.

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29 September 2025

Sector update | Financials

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