Herding by Indian Equity Mutual Fund Managers : Forced or Chosen?
Authors
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Satyakam Dev
Research Scholar, Manipal School of Commerce and Economics, Manipal Academy of Higher Education, Manipal - 576 104, Karnataka. & Assistant Professor, Manipal Institute of Technology, Manipal Academy of Higher Education, Manipal - 576 104, Karnataka
https://orcid.org/0000-0003-4525-7048
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Suman Chakraborty
Professor and Head (Corresponding Author), Department of Economics, TAPMI School of Business, Faculty of Management, Commerce and Arts (FoMCA), Manipal University Jaipur, Jaipur - 303 007, Rajasthan
https://orcid.org/0000-0002-3999-7181
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Poornima Panduranga Kundapur
Associate Professor, Manipal Institute of Technology, Manipal Academy of Higher Education, Manipal - 576 104, Karnataka
https://orcid.org/0000-0002-8271-524X
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Sandeep S. Shenoy
Registrar Evaluation, Manipal Academy of Higher Education, Manipal - 576 104, Karnataka
https://orcid.org/0000-0002-9848-9718
DOI:
https://doi.org/10.17010/ijf/2026/v20i8/176085Keywords:
institutional herding, equity mutual funds, flow-induced trading, scheme recategorization, emerging markets.JEL Classification Codes : G11, G14, G18, G23, G41
Publishing Chronology: Paper Submission Date : November 15, 2025 ; Paper sent back for Revision : June 10, 2026 ; Paper Acceptance Date : July 5, 2026 ; Paper Published Online : August 17, 2026.
Abstract
Purpose : In India, a small group of equity fund managers managed a large, fast-growing corpus of household savings. When these managers herded, prices drifted from value, and the market turned fragile. The Indian regulator has periodically reset fund rules, which forced managers to take identical trades. This raised a key question: was herding rule-enforced or manager-chosen?
Design/Methodology/Approach : To separate the two, this study used the October 2017 rule change, which redefined market-capitalization categories and scheme mandates, forcing many managers to rebuild portfolios through 2018. Herding was measured from monthly holdings of 372 open-ended equity mutual fund schemes, 2013 to 2024, using a bias-corrected structural measure. Each trade was then split into flow-driven and discretionary parts.
Findings : Fund managers herded heavily, at about 18% overall. Though the rule change forced nearly ` 24,000 crore of buying, mostly in mid-caps, it did not raise herding. Herding was instead mostly a matter of choice: 17.5% in chosen trades against only 6.6% in flow-driven trades. Large-cap-mandated mutual funds held almost the same stocks, with an average overlap of 0.70.
Practical Implications : Herding arose from how mutual fund mandates were designed and how managers were rewarded, not from regulatory rule changes. Softening rule changes did not reduce it. Fund managers who held large-cap mandated schemes were less diversified than they appeared.
Originality/Value : This study is a novel attempt to separate forced from chosen herding using portfolio holdings of Indian equity fund managers.
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