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Below the Views on AMFI Data September 2025 by Rohit Sarin Co-Founder Client Associates India`s Largest Multi-Family Wealth Management Firm

The Indian mutual fund industry witnessed a significant behavioral shift in September 2025, with arbitrage funds recording net outflows of Rs.988 crore, a stark reversal from August's robust inflows of Rs.6,667 crore. This Rs.7,655 crore swing represents one of the most dramatic monthly reversals in this category and signals a fundamental change in how sophisticated investors are positioning their portfolios.

Though this could be partly also on account of advance tax outflows in September, it is perhaps the most intriguing signal from September's data. In a month where investors rushed to gold ETFs with Rs.8,363 crore in inflows and exited liquid funds to the tune of Rs.66,042 crore in outflows, conventional wisdom would suggest arbitrage strategies should have thrived. Instead, institutional money appears to have exited, even as retail folios grew from 6.82 lakh to 6.94 lakh.

What makes this trend particularly noteworthy is that this does not appear to be panic liquidation. Arbitrage fund AUM remains substantial at Rs.2.64 lakh crore, and new investors continue to enter the category. This suggests selective institutional exit, rather than retail abandonment. The assessment indicates that arbitrage spreads may have narrowed to levels where risk-adjusted returns no longer justify the strategy for professional investors, even as retail participants continue to view it as a portfolio stabilizer.

This divergence between institutional exit and retail entry reveals a deeper market truth. When supposedly low-risk strategies lose institutional favor during volatile periods, it signals a fundamental reassessment of asset allocation. The arbitrage paradox may well be an early indicator of structural re-allocation in Indian markets that warrant closer attention from wealth managers and investors alike.

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