Equity Mutual Funds See Outflows For Sixth Straight Month Even As Benchmarks Hit Records
A customer counts Indian rupee banknotes. (Photographer Dhiraj Singh/Bloomberg)

Equity Mutual Funds See Outflows For Sixth Straight Month Even As Benchmarks Hit Records

Equity mutual funds continued to witness outflows for the sixth straight month even as the benchmark indices scaled new peaks.

Investors pulled out a net Rs 10,147.12 crore from equity and equity-linked mutual fund schemes in December compared with an outflow of Rs 12,917.36 crore in the preceding month, according to data released by the Association of Mutual Funds in India. The outflow in November was the highest since at least April 2018, when AMFI started compiling data in the current format.

In the first nine months of the current financial year, equity and equity-linked mutual funds have seen a net outflow of Rs 27,293.36 crore compared with a net inflow of Rs 83,787.69 crore in the entire year to March 2020.

Domestic mutual fund investors continued to book profits even as equity markets surged unabated. The Nifty 50, which had gained 11.3% in November, rallied another 900 points or 7.8% in December to cross the 14,000 milestone. These gains have been primarily fuelled by foreign institutional inflows as such investors pumped in more than Rs 1.1 lakh crore on a net basis in the last two months of 2020.

“Outflows from equity-linked funds have continued because markets are at all-time highs and investors are booking profits and choosing to stay on the sidelines,” NS Venkatesh, chief executive officer at AMFI, said during a call with reporters. “There is a gross inflow of Rs 26,073 crore into equity-linked mutual funds in December, so it is not that individuals are not investing in these funds.”

Kirtan Shah, the chief financial planner at Sykes & Ray Equity, said, “A lot of people have been calling us to book profit. Retail investors are pulling out money. A lot of them are getting out because after seeing such a dramatic fall, they are now seeing some money come back. And they’re unsure whether these levels are sustainable. They’re probably worried that there will be a big fall.”

Category-Wise Trend

All equity-linked mutual fund categories witnessed an outflow yet again in December, a trend that began to take shape in June last year.

Investors pulled out of large caps for the seventh straight month. Such schemes witnessed the most outflow among all categories.

A rally in mid-cap stocks could potentially have drawn investor interest. Yet, such funds saw the highest outflow since AMFI started releasing granular data in April 2019.

The selling also continued in multi and small caps. While investors have been withdrawing from multi-cap funds since June 2020, small caps saw outflows for the third month in a row.

SIP Flows

Individual contributions through systematic investment plans rose above the Rs 8,000-crore mark after seven months in December.

To be sure, holidays at the end of November might have caused flows that would ordinarily been recorded in that month to get pushed to December.

Net Flows

Still, the overall mutual fund industry saw a net inflow of Rs 2,968 crore compared with an inflow of Rs 27,194 crore in November. Overall flows in the sector remained positive aided by debt-oriented schemes.

“In the debt category, money has gone out mainly in the ultra-short duration funds, money market funds and gilt funds. The money market and ultra-short duration is because of the quarter-end phenomenon. The outflows in the gilt funds are probably because yields have reached historical lows, so people are probably booking profits,” Venkatesh said.

Liquid funds, used by companies to park short-term cash, too, saw inflows worth Rs 5,102.22 crore against an outflow of Rs 8,415 crore in November. The overnight category of debt mutual funds saw an inflow of Rs 7,410.2 crore during the reported month.

The standout in the debt mutual fund category was corporate bond funds, which saw inflows of Rs 8,609.77 crore, indicating that risk appetite is returning in search for higher returns.

Outflows from credit risk funds again gathered pace in December. Such funds, which began to see outflows after the IL&FS debt crisis, have now seen withdrawals for 21 straight months.

Assets Under Management

Total industry assets under management increased 3.8% over the preceding month to Rs 30.96 lakh crore in December. Equity AUM rose 6.8% sequentially to Rs 8.87 lakh crore, bolstered by the rise in equity markets.

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