Inflows Into Equity Mutual Funds Fall For Second Straight Month In May

Inflows into equity mutual funds fell for the second straight month as benchmark indices remained volatile even as the economic activity continued to resume in phases.

Net inflows into equity and equity-linked schemes declined 15% over the previous month to Rs 5,256.52 crore in May, according to data released by the Association of Mutual Funds in India. Net equity inflows had fallen by half in April on lower distributors’ activity amid the lockdown to contain the coronavirus pandemic.

All categories of equity schemes saw a decline. Net investments into the mid caps dropped to the lowest since AMFI started releasing granular data from April 2019. While inflows into large caps fell, they have remained above the Rs 1,000-crore mark for a year.

“On the debt side, investors taking advantage of conducive reducing interest rates trend and shift towards high quality AAA-rated has resulted in a steady rise in net flows,” said NS Venkatesh, chief executive officer at AMFI. “Credit risk concerns have ebbed following regulatory support, redemptions have come down and we would see investors allocating higher quantum of savings to high quality debt paper.”

Contribution through systematic investment plans fell to the lowest in nearly a year at Rs 8,123 crore in May. Still, net investments managed to stay above the Rs 8,000-crore mark for 18 straight months.

Swarup Mohanty, chief executive officer at Mirae Asset Global Investments Pvt., however, said a 6% drop in SIP from the peak numbers in just two months needs to be noticed. “If the stoppages are due to cash flow issues then it is understandable. If not then the basic concept of rupee cost averaging in SIP has not been understood by the investors,” he told BloombergQuint.

Overall, the mutual fund industry witnessed a net inflow of Rs 70,813.4 crore in all categories of schemes put together, including debt and equity, compared with an inflow of Rs 45,999.5 crore in the previous month.

The liquid or money market category contributed the most to the total inflows as investors pumped in Rs 61,870.9 crore into the schemes used by companies to park surplus cash for the short term.

Credit risk funds continued to witness an outflow. In May, investors pulled out Rs 5,173 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.

Concerns around debt schemes have turned investors wary of even liquid schemes or ultra short-term bond funds, according to Sunil Jhaveri, founder and chairman at MSJ MisterBond Pvt. “The month of March saw volatility due to spike in yields, generating negative returns in these schemes over shorter periods of time. April saw some debt schemes lock downs, trust deficit in credit space and subsequent huge redemption from debt schemes,” he told BloombergQuint.

That, Jhaveri said, helped arbitrage funds gain more popularity among investors. Also, these schemes enjoy equity taxation.

According to Mirae Asset’s Mohanty, it was good to see sanity prevail in debt investing but disappointing to see the equity flows. “The lack of non-SIP flows at these levels suggest that we still have a long way to go in understanding equity as an asset class.”

Total assets under management for the industry rose to Rs 24,28,438.7 crore in May from Rs 23,52,878.20 crore in April. Total equity assets rose 3% month-on-month at Rs 6,31,015.5 crore.