Equity Mutual Funds See Outflow For Third Straight Month In September

Equity mutual funds in India suffered an outflow for the third straight month as investors continue to sell in a market that has erased bulk of it losses triggered by the pandemic despite a record contraction in economy.

Equity and equity-linked schemes witnessed a net outflow of Rs 734 crore in September compared with an outflow of Rs 4,000 crore in August, according to data released by the Association of Mutual Funds in India.

Net investments into such stock plans have been dwindling for months as investors reduce holdings amid worries that the worst impact of the coronavirus may not have passed. While the Nifty 50 snapped its three-month gaining streak to fall 1.23% in September, it has rebounded 58% since its March-low.

“It’s encouraging to see equity numbers improving in September compared to August. Compared to August, gross sales have increased by Rs 2,500 crore to Rs 17,000 crore in September, and redemptions have dropped by about Rs 1,000 crore at Rs 17,500 crore,” Akhil Chaturvedi, associate director and head of sales and distribution at Motilal Oswal Asset Management Company, told BloombergQuint. “Better sales numbers in equity mutual funds could also be a function of markets recovering to pre-Covid levels, early signs of an impending economic recovery, thus leading to increase in investors’ appetite for equities.”

Category-Wise Trend

Barring small caps, all segments witnessed an outflow in September. While investors pulled out of large and multi-cap schemes for the fourth straight month, mid caps witnessed an outflow for the third month in a row. Net investments into small caps revived after two months of outflows.

To be sure, there were inflows worth Rs 1,000 crore via two new fund offers last month, a release by AMFI said.

Inflows in the equity category ended net negative largely because of outflows in the multi-cap category. That, along with inflows into small caps, “maybe connected to the market regulator’s recent circular on multi-cap funds, which in our opinion is a step in the right direction for protecting client interests and making the industry more transparent for the common investor”, said Gautam Kalia, head (investment solutions), Sharekhan by BNP Paribas.

Agreed Motilal Oswal’s Chaturvedi. “We see that gross sales have increased in large and mid cap, focused and small, mid-cap categories. Suggested changes by [market] regulator in the multi-cap fund, that’s minimum 25% exposure to large, mid and small cap, respectively, has possibly led to some opportunistic buying in small- and mid-cap funds.”

The 7% fall in the markets in the third week of September, according to Kalia, too, would have led to reactionary redemptions from some mutual fund investors.

SIP Flows

Contributions through systematic investment remained steady at Rs 7,788 crore over the previous month in September.

Regular investing through SIP route has remained robust, demonstrated by healthy growth in number of SIP folios as well as monthly flows that seems to have stabilised, said G Pradeepkumar, chief executive officer at Union Asset Management Co.

“It appears interest in equity mutual fund schemes is seeing a good revival. Mobilisation into open-ended equity schemes in September has been the highest in the current financial year. The number of folios in the industry as a whole and specifically in equity funds has also gone up significantly,” Pradeepkumar said.

That corroborates with the view of NS Venkatesh, chief executive officer at AMFI. “It is very heartening to observe sustained continuity in the matured investor behavior, systematic and disciplined investment, as reflected in the robust rise in SIP accounts, rising number of new SIPs registered during September, coupled with continued steady monthly SIP contribution amid volatile movement in market indices.”

Preference to large- and mid-cap funds, focused funds category, as also continued strong emergence of ETFs, as the low-cost mutual fund investment avenue, have been the high points in September, he said.

Net Flows

Overall, the mutual fund industry witnessed a net outflow of Rs 52,091 crore in September compared to an outflow of Rs 4,553 crore in the previous month. Liquid funds contributed the most to the total outflow.

Investors pulled out Rs 65,952 crore from the money market schemes, the most since March, compared with an outflow of Rs 15,814 crore in August. 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 have been witnessing an outflow for more than a year now. In September, investors pulled out Rs 540 crore from such schemes. In April, credit risk funds witnessed the highest-ever monthly outflow after Franklin Templeton Mutual Fund wound up six such schemes citing redemption pressure.

“On the fixed-income side, there appears to be preference for schemes with good credit quality, which can offer reasonable returns, for instance banking and PSU fund, medium-duration fund, corporate bond fund etc.,” Union Asset Management Co.’s Pradeepkumar.

Agreed AMFI’s Venkatesh and Sharekhan’s Kalia.

The banking and PSU category, according to Kalia, continued to buck the trend, growing with over Rs 6,400 crore in positive net flows. Venkatesh said investors have preferred to continue with their investments in banking and PSU fund, short-duration funds and overnight funds.

Assets Under Management

Total assets under management and total equity assets remained steady at Rs 27.74 lakh crore and Rs 7.68 lakh crore over the preceding month in September.

That, according to AMFI’s Venkatesh, reflects continued confidence of growing number of investors in mutual fund as an asset class for fulfilling long-term wealth creation objective.