India's Mutual Fund Industry Crosses A Historic Milestone, Surpassing FPI Assets For The First Time

Indian mutual funds have crossed a landmark threshold. They overtook foreign portfolio investors in total assets under custody for the first time. As per National Securities Depository Limited (NSDL) data, mutual fund assets under custody (AUC) were at ₹76.41 lakh crore at the end of June 2026, against ₹76.22 lakh crore in the case of FPIs. The crossover is due to two trends playing out simultaneously.

• Domestic mutual fund assets have grown nearly 15% in the past one year from ₹66.80 lakh crore as of June 2025.

• FPI holdings have declined by about 6% from ₹80.83 lakh crore in the same period.

How The Gap Closed

The transition has been led by a combination of steady SIP inflows, rising retail participation and increased allocation to debt funds and exchange-traded funds (ETFs). Monthly SIP contributions have held over ₹30,000 crore, providing a steady and relatively predictable stream of domestic capital into markets regardless of foreign investor behaviour.

While mutual funds still trail FPIs in direct equity holdings, with FPI equity assets at ₹68.65 lakh crore against mutual funds' ₹54.50 lakh crore, the gap in overall AUC has been bridged by mutual funds' considerably larger presence in debt and passive products.

Mutual fund debt and ETF assets stood at ₹21.91 lakh crore, far exceeding FPI debt holdings of ₹7.58 lakh crore across the general, Fully Accessible Route (FAR), Voluntary Retention Route (VRR) and hybrid categories.

FPIs Have Been Selling

On the other side of the ledger, foreign investors have been consistent sellers. High valuations, poor returns and rising crude prices, due to geopolitical tensions in West Asia, have led FPIs to pull out about $28 billion from Indian equity markets in the last six months. This sustained outflow has eroded the asset base that FPIs had built over decades of investment in Indian large-cap stocks and index constituents.

What Comes Next

According to analysts, mutual funds narrowing the equity gap with FPIs could take several more years, given the scale of FPI's existing equity base. However, FPI debt participation is expected to pick up as passive inflows linked to the inclusion of Indian government bonds in JPMorgan and Bloomberg global bond indices continue to materialise. For now, the overall AUC crossover marks a structural shift in how India's capital markets are funded, with domestic retail investors playing an increasingly central role in price discovery and market stability.

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