Equity Mutual Funds See Outflows For Fourth Straight Month

Equity mutual funds witnessed outflows for the fourth straight month as investors continued to take money off the table at a time the benchmarks recovered bulk of their pandemic-fuelled losses.

Equity and equity-linked mutual fund schemes witnessed a net outflow of Rs 2,724.95 crore in October compared with an outflow of Rs 734 crore in September, according to data released by the Association of Mutual Funds in India.

Net investments into equity funds have been falling for the these past few months. This was initially because of fears of the impact of the Covid-19 pandemic on businesses and later as investors booked profits when equity markets soared. The Nifty 50 has rebounded nearly 65% from its March-low.

“The outflows in equity schemes in October can be attributed to a number of factors. First, there has been a considerable rise in equity markets, and people that had seen the massive fall in March and had entered at that time would have taken some money off the table,” said Amol Joshi, founder of Planrupee Investment Services.

“Second, there is a fear of a second wave of Covid-19 cases, both because of the festive season here in India and because of reports of a rise in cases in Europe and the U.S.,” said Joshi. “And finally, there was quite a bit of volatility in global markets on account of the U.S. presidential elections at the start of November. A few investors have decided to take money out of equity markets in the run up to the elections because they are risk averse.”

According to Raghav Iyengar, chief business officer at Axis AMC, the net outflow in equity schemes is not a cause for too much worry. “Behaviourally, it is natural to see redemptions when the equity market has bounced back so quickly from the sharp fall in March. What is giving me confidence is the gross inflows into equity mutual fund schemes, both in terms of value and volume,” Iyengar said. “My only caveat is that the sectoral and thematic category bears watching. Retail investors must approach it with caution.”

Category-Wise Trend

All the major equity-oriented categories of mutual fund schemes saw net outflows in October. Multi caps saw the biggest outflow since the AMFI started releasing granular data in April 2019. That’s also the fifth straight month of outflows for such schemes. Large-cap funds, too, saw outflows for five straight months in October.

The multi-cap category of equity mutual funds may see more churn after the Securities and Exchange Board of India, earlier this month, allowed asset management companies to convert existing schemes into the newly created flexi-cap fund. This was done to help mutual funds meet the new asset allocation requirements in the multi-cap fund category.

Mid caps registered a net outflow for the fourth month in a row. Small-cap funds, which saw an inflow in September after two months, resumed outflows in October.

SIP Flows

Contributions through systematic investment plans or SIP route increased marginally over the preceding month in October.

“A rise in both SIP contribution and SIP assets under management during October and continued slowing outflow in equity schemes reinforces the retail investor confidence in the mutual fund as an asset class,” NS Venkatesh, chief executive officer at AMFI, was quoted as saying in a media statement. “This trend is reflective in economy improving further with green shoots amply visible...”

According to Joshi, the fall in SIP contribution since the start of the current financial year is reflective of the impact the pandemic has had on the earnings of some individuals, particularly in the services sector.

“Those people, whose incomes have been badly affected have chosen to stop SIPs. But the steady SIP contribution over the past few months also points to the maturity of several investors, where they have continued their investments despite the volatility in equity markets,” said Joshi.

Net Flows

Overall, the mutual fund industry witnessed a net inflow of Rs 98,575.96 crore in October compared with an outflow of Rs 52,091 crore in the previous month. This was led primarily by inflows into fixed income and debt-oriented mutual fund schemes.

Liquid funds, used by companies to park short-term cash, saw net inflows of Rs 19,582.70 crore in October. Mutual funds see high outflows from fixed income schemes at the end of a quarter, which usually reverses at the start of a new quarter.

“The fixed income category as a whole was exciting in October, with participation from both corporates as well as individuals—retail and HNIs,” said Iyengar. There were more inflows in certain categories of fixed income mutual fund schemes because traditional instruments have become less attractive on account of the prevailing low interest rates, he said.

Credit risk funds, however, have continued to witness outflows. In October, such funds saw net outflows of Rs 414.85 crore, adding to the drain of funds that has been recorded since at least the start of the last financial year.

Assets Under Management

Total assets under management and equity assets rose 2.1% and 1.7%, respectively, over the previous month to Rs 28.34 lakh crore and Rs 7.81 lakh crore in October.

The increase in equity assets under management reflects the rise in equity markets during the month.