Net inflow into equity mutual funds (MFs) touched a 20-month low last month, as domestic stock markets saw heavy sell-off due to volatility in global markets.
The negative sentiment that prevailed in January had hit retail investors hard, making them stay away from buying stocks.
Equity MFs witnessed inflows of Rs 2,914 crore in the first month of 2016, while the monthly average inflows stood at Rs 7,550 crore last year. The benchmark BSE Sensex dropped 4.8 percent in January, posting its worst losses since August last year.
Strong inflows into mutual funds acquire significance, given the offsetting impact they make when there is a huge sell-off from foreign investors.
Foreign institutional investors (FIIs) have sold stocks worth Rs 11,000 crore in the domestic markets since January this year, while mutual funds have bought shares to the tune of Rs 6,500 crore.
"Inflows in equity segment have definitely slowed down as January was quite an unusual month with sharp volatility in the stock prices. During such times, it is a natural tendency of investors to pause for some time and hold back their investments," Milind Barve, managing director of HDFC Mutual Fund -- the country's largest fund house, told Business Standard.
A sharp fall in the equity indices resulted in "erosion" of assets under management (AUM) of equity schemes to Rs 3.84 lakh crore by the end of January compared to Rs 4.05 lakh crore on 31 December, 2015.
Concerns over China's slowdown and continued oversupply plaguing crude oil markets have kept the global markets under pressure last month.
However, many fund managers are making use of the fall to buy stocks.
"The recent correction in the markets is due to FII selling. Our belief is crude oil prices may bottom in the near term. The fall has presented us with a good buying opportunity in equities as per our investing framework," S Naren, chief investment officer (CIO) at ICICI Prudential Mutual Fund -- the second-largest fund house in the country, told the daily.