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Inflows Into Equity Schemes Drop, Debt Funds See Outflows

The uncertainty in the equity markets ahead of general election results and concerns around debt funds rubbed off on mutual funds in April—inflows into equity schemes declined to their lowest in 31 months, while income funds saw outflows.

Net inflows into equity mutual funds, including equity-linked schemes, dropped to Rs 4,609 crore during the month, according to data released by the Association of Mutual Funds in India. That’s the worst since Rs 3,743 crore reported in September 2016.

Lower inflows in equity plans came despite an investment of Rs 8,238 crore through systematic investment funds. That suggests redemption pressure at a time volatility rose in equity markets in the election season.

The lower equity inflow number was a surprise, Swarup Mohanty, chief executive officer at Mirae Asset Management, told BloombergQuint. While he said that some of the money is going into new fund offers, Mohanty admitted that the nervousness in the markets would have led to profit-booking. “When you look at a SIP book of Rs 8,200 crore, the number of Rs 4,600 crore is a negative, to put it bluntly.”

Still, Amol Joshi of PlanRupee sees increase in investment via SIPs a positive. The fact that investors are putting more money into the SIPs even after closures that may have happened seems to suggest that goal-based investing is finally working, he said. “That augurs well for the future quarters.”

Overall, the mutual fund industry witnessed a net inflow of Rs 1,00,460 crore across all schemes compared with an outflow of Rs 22,357 crore in March. That was driven by a surge in investments in liquid or money-market schemes. The exact number wasn’t immediately available due to re-classification of mutual fund data by AMFI based on SEBI guidelines.

Close-ended income funds saw a net outflow of Rs 18,635 crore. This was driven by an outflow of Rs 17,644 crore from fixed-maturity plans. Such schemes are considered safer because they invest in high dividend-generating stocks, government securities, certificate of deposits, corporate bonds and money-market instruments.

The nervousness in the markets owing to credit events, rating downgrades and defaults, coupled with global trade imbalance, and uncertainty over outcome of general election has led to investors getting into wait-and-watch mode, NS Venkatesh, chief executive officer at AMFI, said. “We expect investors would return in a big way, as corporate earnings improve and once the election-related uncertainty and global headwinds recede over the next few months.”

Mohanty agreed that the net outflow in the debt funds should be due to the credit issues prevailing in the markets. And that would be the reason why liquid funds have seen big inflows, because there would be a flight to safety, he said.

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Balanced funds saw withdrawals for the fourth straight month, the longest streak since May 2014, with an outflow of Rs 1,615 crore. This is mainly on account of withdrawals from the CPSE ETF or the Bharat 22 ETF or that there is redemption from EPFO, said Venkatesh.

Other exchange-traded funds also saw an outflow of Rs 4,259 crore, the highest in five years.

“The other trend breaker is that after long time the equity ETF category has shown a net outflow,” said Aashish Somaiyaa, managing director and chief executive officer at Motilal Oswal Asset Management Company. “Considering a spate of CPSE launches aiding flows into equities over and above steady participation from EPFO, this huge decline seems to be quite a change. It might be due to some new financial-year related adjustments in the EPFO or it could be the CPSE ETF attriting as people redeem units after getting the initial listing pop and normalisation of discount given in the initial offer.”

Total assets under management for all schemes rose 6 percent month-on-month to Rs 25.27 lakh crore in April.

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(Corrects an earlier version that misstated that income funds saw biggest outflow since October. The data is not comparable since AMFI changed the format of reporting starting April)