(Adds dropped word in headline)

June 10 (Reuters) - Inflows into India's equity mutual funds moderated to the lowest in a year in May as uncertainty over a U.S.-Iran peace deal prompted investors to reduce allocations across segments.

Equity mutual fund inflows declined 40% month-on-month to 229.08 billion rupees ($2.40 billion) in May, data from the Association of Mutual Funds in India showed on Wednesday. Inflows into small-cap, mid-cap and large-cap funds fell 28.2%, 33.2% and 36.9%, respectively.

"The lower inflows is due to extreme volatility in the markets as crude hovers around $100 a barrel, which has prompted near-term caution among investors," said Venkat Chalasani, chief executive of AMFI.

($1 = 95.4500 Indian rupees)

(Reporting by Bharath Rajeswaran and Vivek Kumar M in Bengaluru; Editing by Sonia Cheema)

By Bharath Rajeswaran and Vivek Kumar M