Mutual funds close in on FPIs in Indian equity ownership

In September, mutual funds owned a record 11.7% of Indian equities. Foreign portfolio investors, or FPIs, held less than 14%. This marks a major shift in market ownership. Domestic investment vehicles are gaining influence while overseas investors are losing some of their earlier weight.

The change came from two opposite flows. FPIs recorded heavy selling, reducing their total equity assets under custody to ₹66.18 lakh crore. At the same time, mutual funds continued buying shares. Retail investors sent strong flows into equity mutual-fund products, giving domestic funds money to invest.

The pattern is not limited to the broad market. Among Nifty 500 companies, domestic institutional investors reached a record 21% in Q1FY27, while FPI holdings fell to 17%. If domestic purchases continue, Indian markets may become less dependent on foreign ownership, although foreign flows will still matter for prices and sentiment.

Mutual funds collect money from investors and invest that pooled corpus across assets such as company shares. Equity mutual funds therefore give households indirect ownership of Indian companies. Their holdings can grow when investors add money and when the funds buy more shares.

FPIs are investors based outside India that put money into Indian financial markets. They can buy shares of listed companies, building exposure to sectors such as banks, IT, healthcare or telecom. The article tracks their combined ownership through assets under custody and market-share data.

These groups affect the market in different ways. Mutual funds have benefited from a deluge of retail flows into equity products. FPIs have been selling record amounts, reducing their assets under custody. The result is a changing ownership balance: domestic funds now hold a larger share, while overseas investors account for a smaller share than before.

The September figures show mutual funds at a record 11.7% of Indian equities and FPIs below 14%. That places the two ownership shares within roughly 2.3 percentage points, though the exact FPI percentage is not given. The gap has therefore become much smaller than in 2021.

In May 2021, FPIs held a record 20% of Indian equities. Mutual funds held around 7%. The difference was about 13 percentage points. By January, mutual-fund ownership had already reached 11%, before rising further in September.

This narrowing reflects a transfer of market weight rather than simply a change in prices. FPIs have been selling, while mutual funds have continued purchasing with money flowing into equity products. The shift is even clearer among Nifty 500 companies, where DIIs reached 21% and FPIs fell to 17% in Q1FY27.

Mutual funds have expanded because investors are sending unusually large amounts into equity products. The article describes a deluge of retail flows. Funds can use this incoming money to keep purchasing shares, which lifts their total equity holdings and market ownership.

The scale is striking. Mutual-fund equity assets rose from around ₹20 lakh crore in April 2022 to about ₹40 lakh crore by January 2024. They crossed ₹50 lakh crore in October 2025 and reached approximately ₹55.14 lakh crore. FPIs, meanwhile, have recorded heavy selling.

FPI equity assets under custody stood at ₹66.18 lakh crore in September, their lowest since March 2026. That was far below the record ₹77.96 lakh crore in September 2024. The contrasting flows explain why mutual funds gained share while FPIs lost ground.

Domestic investors are becoming a larger force in Indian equities. Mutual funds, DIIs, high-net-worth individuals and family offices may together account for more of the market over time. This matters because ownership is shifting toward investors based within India rather than remaining concentrated among overseas funds.

The clearest example is the Nifty 500. DII holdings rose for the ninth straight quarter to a record 21% in Q1FY27. FPI holdings fell to 17%. Across Indian equities, mutual funds reached 11.7% in September while FPIs dropped below 14%.

This may provide a stronger domestic buying base when foreign investors sell. It could reduce dependence on international flows, but the article does not quantify the effect on prices or volatility. Foreign investors still hold a substantial share, and their return will depend on earnings, currency movements and competing Asian markets.

Foreign investors have historically had significant exposure to banks and IT companies. The article links their changing preferences partly to the changing composition of India’s economy. As investors reassess where future growth may come from, ownership can decline in established sectors and rise elsewhere.

FPI ownership has fallen across IT, FMCG, consumer services, realty and financials. Yet the trend is uneven. Foreign investors increased their holdings in capital goods, metals and mining, telecom, services and healthcare. This suggests a sector rotation rather than a blanket withdrawal from Indian equities.

The article does not identify a separate reason for each sector move. It points to broader changes in the economy and says a recovery in corporate earnings will be important for renewed foreign appetite. Competitive Asian markets, including Taiwan and Korea, are also attracting attention through AI-focused investments.

Foreign investors compare the possible return from Indian shares with opportunities elsewhere. Corporate earnings are central because stronger profits can support better share returns. Currency movements also matter: depreciation reduces the value of rupee-denominated gains when measured by overseas investors.

The article gives a specific example. If earnings grow 14–15% annually and the currency depreciates by 2–3% each year, the resulting return for foreign investors could still be around 12%. That combination could improve India’s appeal if earnings recover.

However, India is competing for capital with markets such as Taiwan and Korea. Those markets are drawing attention through AI-centric investments. The article therefore identifies two conditions for renewed FPI interest: a recovery in Indian corporate earnings and returns strong enough to compete with alternative Asian opportunities.