Equity MFs under stress, report outflows for eighth month running in Feb

Multi-cap, focused, and large and midcap were the only three categories to see net inflows

Equity-oriented mutual fund (MF) schemes continued to face redemption pressures in February despite an unprecedented rally in stock prices sparked by the Union Budget. They witnessed net outflows of Rs 4,534 crore

Outflows were, however, half of that in the previous month and also below previous eight-month average of Rs 5,849 crore

Eight out of 11 sub-categories in the segment saw outflows, with the new flexi-cap category seeing the highest outflow nearly Rs 4,500 crore, according to data provided by industry body Association of Mutual Funds in India (Amfi).

Overall, assets under management (AUM) rose 8 per cent month-on-month to Rs 9.6 trillion, thanks to the surge in the stock markets.

In February, the benchmark Sensex and the Nifty rallied about 13 per cent to scale new lifetime highs of 52,154 and 15,315, respectively. Correction triggered by rising global bond yields saw the indices give up over half of the gains, to end the month about 6 per cent higher.

“With markets scaling new highs, investors, who have stayed invested for the last three-four years, booked profits. On the other hand, the new investors coming are wary of entering the markets at elevated levels,” said DP Singh, chief business officer at SBI MF, the country’s largest fund house.

Multi-cap, focused, and large and mid-caps were the only categories to see net inflows. Industry players said the outflows from flexi-cap category were unusually high because of operational reasons.

“Many fund houses have renamed their existing multi-cap funds to flexi-cap. As a result, they have to waive off the exit-load for a period of one month. Some distributors used this opportunity to help their clients churn portfolios. We have seen investors redeeming from flexi-cap funds and moving into other categories like liquid funds and balanced advantage funds,” said a senior industry official.

Last month, nine fund houses re-categorised multi-cap funds as flexi-caps, following the market regulator’s move to tweak the definition. Meanwhile, the multi-cap segment saw net inflows of Rs 4,078 crore as some fund houses launched new funds in this category.

The inflows through systematic investment plans (SIPs) stood at Rs 7,528 crore, while SIP AUM was Rs 4.21 trillion in February.

“The monthly SIP contribution for February has come down by Rs 495 crore owing to weekend dawning at the end of February. The shortfall would get accumulated and reflected in March monthly data,” said N S Venkatesh, chief executive of Amfi. In January, inflows through SIPs were Rs 8,023 crore.

 Debt-oriented schemes saw net inflows of Rs 1,735 crore in February, while the liquid funds category saw net inflows of Rs 17,302 crore, and other categories like short-duration funds, dynamic bond funds and corporate bond funds saw sharp outflows.

Market experts attributed this to the surge in bond yields. “There has been a sharp increase in yields over the last two months. Due to this, most corporate bond funds have seen a temporary decline in returns. This has led to some investors with shorter investing time frames getting concerned and moving out of the category,” said Arun Kumar, head of research, FundsIndia. Corporate bond funds saw net outflows of Rs 6,752 crore in February.

Overall, the MF industry saw net inflows of Rs 4,090 crore, while net AUM stood at Rs 31.64 trillion at the end of February.