Money Market Schemes Drive Outflows From Mutual Funds

Investors pulled out the most in three months from mutual funds in December led by an outflow from the money market schemes used by companies to park surplus cash for the short term.

Across all schemes, the industry witnessed a net outflow of Rs 1.36 lakh crore compared with a net inflow of Rs 1.42 lakh crore in the preceding month, data released by the Association of Mutual Funds in India showed.

That’s the most since Rs 2.3 lakh crore total outflows in September, when IL&FS crisis spurred the biggest monthly withdrawal from money-market schemes in at least a decade. The liquid funds, however, drove the inflows in October and November for the industry.

In December, investors withdrew Rs 1.49 lakh crore from these schemes compared with an inflow of Rs 1.36 lakh crore in the preceding month. Such schemes usually face redemption pressure at year-end because of advance tax payments.

Inflows into equity mutual funds, including equity-linked savings schemes, also fell to their lowest in nearly two years. Equity inflows dropped 21.5 percent over the previous month to Rs 6,606 crore in December—the lowest since February 2017.

“The last one year has been a bit confusing in terms of returns for investors. Secondly, regulatory changes is also something which everybody is adjusting to,” said Aashish Somaiyaa, chief executive officer at Motilal Oswal AMC. He sees the trend of slowing inflows to continue for another six to 12 months unless the markets rise.

Swarup Mohanty, chief executive officer at Mirae Asset Global, said the interesting aspect is investment through systematic investment plans. “While investors continue to add money through the SIP route they seem to have gone out via the lump sum route.”

Outflows from income scheme fell 48 percent to Rs 3,407 crore in December. Such schemes are considered safer because they invest in high-dividend generating stocks, government securities, certificates of deposits, corporate bonds and money-market instruments. Balanced fund inflows fell the most in five months to Rs 45 crore from Rs 215 crore in November.

“While liquid fund outflows were due to a seasonal effect, the outflows from income funds were due to volatility in the bond market,” said NS Venkatesh, chief executive officer at AMFI. “As yields have begun stabilising, the flows should improve in income funds,” Venkatesh told BloombergQuint. “Positive flows should start coming from January onwards.”

Total assets under management fell for the first time in three months to Rs 22.85 lakh crore in December. Total equity assets rose 2 percent to Rs 7.86 lakh crore during the month.

The average assets under management performed “reasonably well” considering the current market volatility, Venkatesh said. “After the elections, if macroeconomic indicators remain stable, fund flows into equity via mutual funds route will improve further. The mutual funds industry will outperform in 2019 to the extent of 15 of percent.”