Equity Mutual Funds Witness Outflow For Second Straight Month

Equity mutual funds witnessed an outflow for the second straight month as investors continue to cash out in a market that has recovered bulk of the pandemic-fuelled losses despite mounting infections and dire economic forecasts.

Equity and equity-linked schemes witnessed an outflow of Rs 4,000 crore in August compared with an outflow of Rs 2,480 crore in July, 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 even as equities continue their ascent. Indian benchmarks have jumped more than 50% of their March low. The Nifty 50 gained 3% in August.

All segments witnessed an outflow in August. Among schemes, investors pulled out the most from large caps. Mid and small caps witnessed outflow for the second straight month, while multi caps for the third. AMFI started releasing granular data in April 2019.

Contribution through systematic investment plans fell for the fifth straight month. Net investments into such schemes stood at Rs 7,791.6 crore in August compared with Rs 7,831 crore in July.

“This is general investor behaviour — post-recovery, we generally see outflows. This was also seen post-recovery from the global financial crisis. This is also a function of the uncertain environment where markets recovered significantly but we are still seeing significant negative data for virus and the economy. We have seen multiple market participants advising caution, and this is a cautious stance of the investors,” Santosh Kumar Singh, head of research at Motilal Oswal Asset Management Company, said. But “I do not see it as a long-term trend. Once we see clarity emerging we would again start seeing inflows in the asset management industry given financialisation of assets”.

According to G Pradeepkumar, chief executive officer at Union Asset Management Company, while investors have continued to book profits from equity mutual funds over the last two or three months, about 4.65 lakh new folios were added in August, indicating sustained retail interest in mutual funds. Again, though the SIP amount has dropped very nominally, there is a net addition of about 3.43 lakh SIP folios.

“It also appears that some investors have taken a tactical asset allocation call by moving from equity to low-duration or ultra short-term funds with the objective of re-entering equity funds at lower levels in the event of a correction in the markets,” Pradeepkumar told BloombergQuint.

Agreed S Venkatesh, chief executive officer at AMFI. “Despite persistent volatility and challenging economic scenario, retail investors continue to exhibit mature investment behavior, reflected in record high retail AUMs, continued rise in SIP folios, and significantly higher quantum of flows towards multi-asset allocation schemes during the month,” he said, adding ultra-short and low duration funds, too, witnessed positive flows.

The overall mutual fund industry, too, witnessed a net outflow of Rs 14,553 crore compared to an inflow of Rs 89,813 crore in July. The liquid or money market category contributed the most to the total outflow.

Investors pulled out Rs 15,814 crore from these schemes that are used by companies to park surplus cash for the short term compared with an inflow of Rs 14,055 crore in July.

Credit risk funds continued to witness an outflow. In August, investors pulled out Rs 554.14 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 assets under management rose 2% month-on-month to Rs 27.78 lakh crore in August. Total equity assets rose 5% to Rs 7.67 lakh crore during the period. That mainly came on the back of a stock market rally.