Tax Policies and SIPs to Keep Indian Equity Inflows Strong, Says JP Morgan

Global investment bank JP Morgan has predicted sustained inflows into Indian equity markets despite muted returns over the past two years. Domestic retail investors successfully offset foreign portfolio investor outflows during the 2025 and 2026 financial years.

This resilience reflects a broader trend involving the structural migration of Indian household savings into financial assets. Retail participants continued deploying capital through Systematic Investment Plans (SIPs) rather than reacting to short-term market movements.

"The inflows should continue due to tax and policy," JP Morgan said in its equity strategy report, as quoted by media reports.

Tax Policy Drives Inflows

Changes to India's tax framework have enhanced the appeal of stock markets over competing financial products. Equity long-term capital gains are now taxed at 12.5%. The removal of indexation, the taxation of insurance proceeds, and slab-rate taxation for debt mutual funds heavily favour equities.

"Policy and tax are also supportive: equity is taxed at 12.5% LTCG, and the removal of indexation, taxation of insurance policy proceeds, and slab-rate taxation for debt mutual funds improves equity's relative appeal," the investment bank said.

Steady growth in monthly Systematic Investment Plan (SIP) contributions acts as a primary stabilising force against global volatility. These retail inflows provide a consistent stream of domestic capital to offset foreign fund exits.

Key Downside Risks Identified

The investment bank outlined specific thresholds that could challenge its positive forecast. JP Morgan said its constructive thesis would face pressure if monthly SIP inflows fall below ₹250 billion for an extended period.

Analysts identified an additional downside risk tied to market regulations. Any regulatory changes triggering a decline of more than 20% in derivatives trading volumes would threaten overall market activity and undermine the ongoing retail participation, the report said.

Equity MFs Inflow

Equity-oriented mutual fund schemes witnessed a net inflow of ₹22,908 crore in May, the lowest level in a year, amid volatile market conditions.

The inflow declined 40% from ₹38,440 crore recorded in April, according to data released by the Association of Mutual Funds in India (Amfi) on Wednesday. Overall, the mutual fund industry reported a net outflow of ₹64,131 crore in May against a net inflow of ₹3.22 lakh crore in April, primarily due to a withdrawal of ₹96,948 crore from debt-oriented schemes.

Consequently, the industry's Assets Under Management (AUM) dipped to ₹81.6 lakh crore at the end of May from ₹81.92 lakh crore a month earlier.

According to the data, net inflows into equity schemes stood at ₹22,908 crore in May, compared with 38,440 crore in April, ₹40,450 crore in March, ₹25,978 crore in February and ₹24,028 crore in January.

The latest inflow was the lowest since May 2025, when equity mutual funds had attracted a net inflow of ₹19,013 crore.