Inflows Into Equity Mutual Funds Hit A Five-Month High In January
The portrait of Mahatma Gandhi is displayed on an Indian 50 rupee banknote in an arranged photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)  

Inflows Into Equity Mutual Funds Hit A Five-Month High In January

Inflows into equity mutual funds jumped to the highest in five months in January as investor sentiment improved after the broader market, which declined for two straight years, turned a corner.

Net inflows into equity and equity-linked schemes rose 75 percent sequentially to Rs 7,877.4 crore in January, according to data released by the Association of Mutual Funds in India. That’s the highest since August 2019.

An analysis of the category-wise data showed that mid caps witnessed the highest inflows since AMFI started offering granular data. The small-cap schemes, too, witnessed the biggest inflows since August. Investments into large caps, though remained flat sequentially, stayed above the Rs 1,000-crore mark for the eighth straight month. AMFI started offering granular data of equity inflows since April, according to the guidelines of the market regulator.

That came as the Nifty Midcap and Smallcap indices rallied 5.31 percent and 6.71 percent, respectively, last month even as the benchmark Nifty 50 Index posted its first loss since August.

The small, mid and multi-cap categories more than doubled their inflows compared with December, indicating investors’ willingness to look at categories that have had substantial price correction and where valuations are lower than historical averages, said Vishal Kapoor, chief executive officer at IDFC Asset Management Company.

Also, monthly SIP flows sustained, with January setting a record. That signaled a continued retail investor conviction to use such investment plans to manage equity market volatility, Kapoor said. The fixed income asset class saw strong growth, with average assets in January growing by almost Rs 50,000 crore, led by high quality ultra-short and short-term funds, he said.

Contribution through systematic investment plans also remained steady at Rs 8,531.90 crore in January.

Overall, the mutual fund industry witnessed a net inflow of Rs 1.20 lakh crore across all segments, mainly aided by investments into the liquid or money market category. That compares with an outflow of Rs 61,809.70 crore in December.

The liquid schemes used by companies to park surplus cash for the short term witnessed an inflow of Rs 59,682.29 crore compared with the Rs 71,158.5-crore outflow in December, which was mostly because of quarter-end withdrawals.

With liquid fund returns moderating, for certain investors arbitrage funds make sense on a post-tax returns basis, according to Amol Joshi, founder of Plan Rupee Investment Services. That’s because arbitrage funds qualify for equity taxation, he told BloombergQuint. Short-term capital gains tax in equity is only 15 percent against 30 percent in a debt fund for an investor in the high tax bracket. Also, dividends from debt funds attract higher tax compared to arbitrage funds, Joshi said.

Also, starting Oct. 20, the Securities and Exchange Board of India tightened norms for liquids funds as the market regulator imposed an exit load on investors withdrawing funds withing seven days of their investment.

Net investments into arbitrage funds jumped threefold sequentially to Rs 1,700 crore in January, the AMFI data showed.

Money Managed By MF Industry

The mutual fund industry’s total assets under management rose 3.4 percent month-on-month to hit a record Rs 28.18 lakh crore in January. Total equity AUM rose 3.5 percent to Rs 7.89 lakh crore during the period.

The mutual fund industry’s average AUM was driven by positive flows in all categories of open-ended schemes, and a record SIP contribution and total SIP AUM at Rs 3.25 lakh crore show retail investors’ acceptance of mutual funds as a long-term wealth creation avenue amid market volatility, said NS Venkatesh, chief executive officer at AMFI. “We expect this positive growth momentum in mutual fund AUMs to continue, driven by growth-oriented budget and the Reserve Bank of India’s stance on continuing benign interest rate cycle, resulting in 15-20 percent growth for the mutual fund industry this fiscal.”

Watch | how AMFI’s NS Venkatesh expects the mutual fund industry to fare in the ongoing financial year.

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