Inflows into equity mutual funds fell to a 10-month low of Rs6,120 crore in August as investors took a cautious approach and temporarily shifted funds from equity to debt due to the higher interest rate scenario.
This was the 18th consecutive month of inflows into equity mutual funds (MFs) but the pace of inflows has been declining over the past few months.
Net inflows in August were lower compared to Rs.8,898 crore in July, Rs.15,495 crore in June, Rs.18,529 crore in May and Rs.15,890 crore in April, according to data released by the Association of Mutual Funds of India (Amfi) on Friday.
August saw the lowest level of inflow since October 2021, when the equity mutual funds attracted Rs 5,215 crore.
The stock charts have seen net inflows since March 2021. These charts have seen outflows for eight months from July 2020 to February 2021, losing Rs.46,791 crore.
Priya Agrawal, money coach, LXME, attributed the lower flow to investors taking a cautious approach this month and temporarily shifting money from equity to debt considering a higher interest rate scenario.
“Inflows from multilateral investment funds, while positive, have declined in recent months. There is usually a psychological tendency among local investors to take profits near all-time highs (particularly when markets are correcting after reaching similar levels in the past). Nearby), which is also reflected in the lower amount of inflows, said Arun Kumar, head of research, FundsIndia.
Sanjeev Bajaj, Chairman and Managing Director of Bajaj Capital, said the drop in equity inflows could be attributed to the sharp rise in the stock market, as investors feared the higher valuation.
While equity inflows into micro-investment funds were moderate, inflows of foreign portfolio investors rebounded and supported equity markets.
Within equity funds, flex-cap, large and mid-cap funds, and mid- and small-cap funds saw the largest inflows.
In addition, several funds were launched during the month, given capital markets regulator Sebi has lifted the ban on this.
Kavita Krishnan, Senior Analyst – Director of Research at Morningstar India, said equity ETFs have seen inflows albeit at a lesser pace.
“FDI inflows continued to remain positive for the second month as Indian markets continued to maintain a positive trajectory. Investors are likely to take comfort from the broader expectations of an easing of the interest rate cycle. This is based on the general consensus around inflation peaking. Confidence in Indian markets, which are characterized by high multiplier gains.”
The monthly SIP contribution (Systemized Investment Plan) touched an all-time high of Rs 12,693 crore in August, and the number of SIP accounts also rose to an all-time high of Rs 5.71 crore surpassing the June high of Rs 5.61 crore.
Moreover, the Mutual Fund Securities crossed the all-time high of Rs 13.64 crore and MF Retail Securities also touched a record high of Rs 10.89 crore.
“Monthly SIP contribution, SIP AUM, SIP Folios, SIP Joint Fund Folios, and AUMs, all at all-time highs along with continued positive inflows across most mutual fund plan classes, indicate a growing and informed investment preference toward the mutual fund asset class,” said N.S. Venkatesh, CEO of AMV, said investors continue to invest fully and are also committed to goal-based investing.
Moreover, the share of retail as a share of total AUMs from the microfinance industry of more than 50 percent is indicative of continued interest in the mutual fund asset class.
Apart from equity, debt mutual funds saw an inflow of Rs49,164 crore last month, well above Rs 4,930 crore in July.
“This net outflow may be due to higher interest rates and uncertainty related to interest rate increases, and investors are putting their surplus money in this category in the short term while maintaining liquidity,” Agrawal said.
In debt schemes, investors prefer liquid funds over interest rate sensitive fixed income schemes, due to the policy of Reserve Bank of India to contain inflation and thus tighten liquidity. Flows will enter debt schemes once the Reserve Bank of India (RBI) reviews its stance to adjust.
However, the hybrid schemes saw a net drawdown of Rs 6,601 crore and Gold Exchange Traded Funds (ETFs) saw a net outflow of Rs 38 crore.
Overall, the mutual fund industry reported a net inflow of Rs.65,077 crore in August as compared to Rs.23,605 crore in July.
The inflow pushed assets under management (AUM) of the industry to rise to Rs.39.34 thousand crore at the end of August from Rs.37.75 thousand crore at the end of July.