Inflows Into Equity Mutual Funds Crash In June

Inflows into equity mutual funds crashed in June even as India's benchmark indices surged on hopes of a revival in the economy after lockdown curbs were eased.

Net investments into equity and equity-linked schemes tumbled 95% over the preceding month to Rs 240.55 crore in June, according to data released by the Association of Mutual Funds in India. This was the third straight monthly drop.

The inflows dropped despite more than 7% jump in the S&P BSE Sensex and the NSE Nifty 50 in June. Indian equity indices have recovered bulk of the losses after their worst selloff in more than a decade triggered by the Covid-19 freeze.

Large- and multi-cap schemes saw the first ever outflow in June since AMFI started releasing granular data in April 2019. Equity multi-cap funds saw a month-on-month outflow of Rs 778 crore in June, while investors withdrew Rs 213 crore from large-cap schemes. Net investments in small and mid caps rose at a slower pace.

"The fall is massive across debt and equity segments, with both shrinking by 95% each," said Prableen Bajpai, founder of FinFix Research & Analytics. "One reason is that the recovery in the markets has prompted people to book profits in the equity space. The second reason being the deeper issues such as fear of job losses, salary cuts, and thus the tendency of flight to safety during uncertain times."

Contribution through systematic investment plans fell below Rs 8,000 crore for the first time since November 2018. Net investments into such schemes stood at Rs 7,927.11 crore in June compared with Rs 8,123 crore in May.

Still, Gurmeet Chadha, chief executive officer and co-founder of Complete Circle Consultants Pvt., said the investments into SIPs are "healthy considering the job losses, salary cuts and the overall grim economic outlook". Flows into equity are marginal because of profit-booking by large family offices and cash preservation as outlook on markets and businesses is uncertain, Chadha said.

Agreed G Pradeepkumar, chief executive officer at Union AMC. That the monthly SIP contribution has been slowing down is worrying, but it is not completely unexpected given the strain on cash flows and incomes experienced by many investors on account of the Covid-19 situation. "Once the economic situation improves, the flows should also pick up."

NS Venkatesh, chief executive officer at AMFI, said mutual fund SIP investors may have opted for a pause and the contribution should surge in the fourth quarter of calendar year 2020.

But there’s a note of caution for investors entering the markets on their own and not through the mutual fund route.

“In the last few weeks, we have observed significant higher activity in the markets from the retail investors and at the same time activity in a lot of penny stocks has also gone up," said Sachin Shah, fund manager at Emkay Investment Managers Ltd. "It will be very prudent for retail investors to not get lured into short-term gains from speculative penny stocks.”

India has seen about 1.8 million new accounts opened since March, mirroring the rush of first-time investors who drove record sign-ups at U.S. brokerages, Bloomberg reported citing data from the Central Depository Services (India) Ltd.

Net Flows

Overall, net inflows of the mutual fund industry dropped 90% to Rs 7,266 crore from Rs 70,813.4 crore in May. That was led by outflows from liquid funds.

Investors pulled out Rs 44,226 crore from the money market schemes in June compared with an inflow of Rs 61,870.9 crore. Such schemes are used by companies to park short-term cash and usually see a spike in redemption at the end of a quarter.

Credit risk funds continued to witness an outflow. In June, investors pulled out Rs 1,494 crore. In April, credit risk funds witnessed the highest-ever monthly outflow after Franklin Templeton Mutual Fund wound up six such schemes citing redemption pressure.

Total AUM

Total assets under management rose 7% month-on-month to Rs 26.07 lakh crore in June. Total equity assets rose 9% to nearly Rs 6.9 lakh crore during the period. That mainly came on the back of the stock market rally.

“Reducing interest rates, gradual unlocking of economic activity with expected return to normalcy has seen renewed buoyancy in markets, leading to mutual fund AUMs crossing Rs 25-lakh-crore mark for the first in the last three months of this fiscal,” Venkatesh said.