Inflows into equity mutual funds fell to their lowest in 13 months in March as investors withdrew funds to avoid the tax on long-term equity gains that kicked in from April 1.
Net investments into equity funds declined 59 percent over the previous month to Rs 6,657 crore in March, according to data updated on the website of Association of Mutual Funds in India. That’s despite a record inflow of Rs 3,703 crore into equity-linked savings schemes in the last month of the financial year to help save on income tax.
The decline in inflows can be attributed to volatility and the long-term capital gains tax, said Swarup Mohanty, chief executive officer of Mirae Asset Global Investments (India) Pvt. Ltd. “It’s disappointing to see equity investors redeeming money at a time when corporate earnings have started reversing on the upside.”
India’s equity benchmark Nifty 50 Index has fallen nearly 10 percent from its all-time high in January after a global sell-off and Finance Minister Arun Jaitley’s move to bring back the tax on long-term equity gains after 13 years. The tit-for-tat import tariffs by the U.S. and China has also left the markets volatile.
That has definitely played a role in the mind of advisers and investors, Mohanty said.
Taher Badshah, chief investment officer at Invesco Mutual Fund, said that gross sales have been strong but agreed net sales have been weak due to redemptions driven by the new tax. The flows are expected to normalise in the coming months, he said.
- Mutual funds saw an outflow of Rs 50,752 crore in March over the previous month.
- Balanced funds snapped a two-month declining streak. The category saw inflows increase 34 percent over February to Rs 6,754 crore.
- Total asset under management declined for the second straight month, down 4 percent to Rs 21.36 lakh.
- Equity assets too fell 3.5 percent to Rs 7.5 lakh crore.