The industry's assets under management increased 4.3% from the previous month to just under Rs 85.8 lakh crore at the end of July.Equity mutual fund inflows declined 42% from a year earlier to Rs 24,697 crore in July, as investors became more cautious amid concerns about high valuations and subdued equity returns. However, steady SIP contributions continued to support the segment.Despite the slowdown, equity-focused schemes extended their run of positive inflows to 65 consecutive months in July, according to data released by industry body Amfi on Tuesday.The July inflow was significantly below the Rs 28,973 crore recorded in June and the Rs 42,702 crore received in July last year. The moderation came even as retail participation remained firm. Monthly systematic investment plan (SIP) contributions increased slightly to Rs 31,961 crore in July from Rs 31,781 crore in June. The figures suggest that investors are still allocating money to equities, but are doing so more cautiously and selectively.“The moderation in equity mutual fund inflows reflects a degree of selectivity rather than a loss of investor confidence in equities. It also highlights ongoing portfolio rebalancing amid evolving valuations, with investors favouring segments that offer stronger long-term return potential while remaining mindful of associated risks,” said Ankur Punj, MD & business head, Equirus Wealth.Akhil Chaturvedi, ED & chief business officer, Motilal Oswal AMC, attributed part of the cautious approach towards equity-oriented mutual funds to the relatively weak returns delivered over the past two years.Small cap schemes attracted the highest equity inflows in July at Rs 7,768 crore. They were followed by mid cap funds, which received Rs 6,192 crore, and flexicap funds, which drew Rs 4,710 crore. Large cap schemes attracted Rs 1,322 crore during the month.The mutual fund industry as a whole, however, saw a sharp reversal in July. Net inflows came in at just under Rs 2.4 lakh crore, compared with an outflow of Rs 52,949 crore in June.In case you are wondering how to pick the right mutual funds and earn passive income from MFs and ETFs, you can check this free online workshop by Economic Times.Debt-oriented schemes accounted for much of the turnaround, drawing around Rs 1.9 lakh crore in July after witnessing an outflow of Rs 1.1 lakh crore in June. Liquid funds attracted the largest share, with net inflows of Rs 1.2 lakh crore. Overnight funds followed with Rs 40,413 crore, while money market funds received Rs 21,180 crore.“The sharp reversal in debt flows was led by strong inflows into liquid, overnight and money market funds, even as longer-duration categories remained under pressure. This suggests that investors continue to value liquidity and flexibility in their debt portfolios rather than making a broad-based shift towards taking duration risk,” said Varun Gupta, CEO, Groww Mutual Fund.The industry's assets under management increased 4.3% from the previous month to just under Rs 85.8 lakh crore at the end of July. Amfi CEO Venkat Chalasani said the rise was mainly supported by an increase in market values and continued purchases by domestic institutional investors.