Inflows Into Equity Mutual Funds Snap Four-Month Rising Streak In September

Inflows into equity mutual funds snapped the four-month rising streak even as the benchmark indices reported their best September in six years after India cut corporate tax rates.

Net inflow into equity and equity-linked schemes fell 28 percent over the previous month to Rs 6,609 crore in September, according to data released by the Association of Mutual Funds in India.

Investors used the spike in stock prices after the corporate tax cut to book profits through redemptions, according to Sunil Subramaniam, managing director and chief executive officer at Sundaram Asset Management Company Ltd. He, however, expects the equity inflows to pick up in October.

NS Venkatesh, chief executive officer at AMFI, said the mutual fund industry has seen a growth in participation from retail investors. “The (market) regulator has done a phenomenal job in mitigating risks in the debt market investments. For equity funds, the growth is mirroring the market,” Venkatesh said, adding the retail assets under management stood at Rs 11,23,779 crore during the month.

Also, opening of new SIP accounts showed robust growth, he said. “When the broader markets start performing, we will see SIPs outperforming.”

Contribution through systematic investment plans remained steady in September.

Overall, the mutual fund industry witnessed an outflow of Rs 1.51 lakh crore compared with an inflow of Rs 1.02 lakh crore in August. The liquid or money market category contributed the most to the total outflows as the schemes used by companies to park surplus cash for the short term witnessed quarter-end withdrawals.

Investors pulled out Rs 1.40 lakh crore from liquid funds in September compared with an inflow of Rs 79,428.2 crore in August.

“Liquid fund outflows was on account of advance tax payments and nervousness with regard to the debt funds crisis,” Gajendra‪ Kothari, managing director and chief executive officer at Etica Wealth Management Pvt. Ltd., told BloombergQuint. “Corporates have now started deploying in overnight funds. Also, due to SEBI’s new rule on exit load in liquid funds, corporates now see overnight funds for their day-to-day parking of funds.”

Multi-cap funds, he said, remains investors’ favourite as they are unsure whether there is value in investing in mid or small-cap funds.

“Arbitrage funds— that leverages the price differential in the cash and derivatives market to generate returns—are attracting inflows due to better post-tax returns, especially in the light of proposed graded exit load in liquid funds as well as moderating liquid fund returns,” Amol Joshi, founder of PlanRupee Investment Services, told BloombergQuint.

Total AUM

Total assets under management dropped marginally over the previous month to Rs 25.60 lakh crore in September. Total equity AUM, however, rose 3.4 percent to Rs 7.01 lakh crore during the month.