At Rs 2,480 cr, equity schemes see largest outflow in seven years

Investors move towards debt, gold ETF, eyeing pockets of safety

Equity mutual fund (MF) schemes saw the largest net outflows in seven years, with outflows reaching Rs 2,480 crore in July. Industry experts attribute it to investors’ lack of confidence on sustainability of the recent market rally amid the economic uncertainty.

This was the largest quantum of net outflows seen in equity schemes since October 2013, (Rs 3,542 crore), which was around the time of ‘taper tantrum’ seen in US.

Industry observers say there has been profit-booking with high net worth investors (HNIs) taking money off the table amid market run-up. “This can be attributed to profit-booking by HNIs and also some investors waiting on sidelines,” said N S Venkatesh, chief executive of Association of Mutual Funds in India.

“Investors are not convinced whether the sharp rally seen in recent months can be sustained. It seems to be a call taken to conserve cash, with investors not being comfortable with the run-up,” said Swarup Mohanty, chief executive officer at Mirae Asset Management Company.

The frontline index Nifty gained over seven per cent in July. Since March lows, the 50-share Nifty has been up over 48 per cent even as economic uncertainty remains following Covid-19 outbreak.

Industry data showed that this was first negative outflows seen in equity schemes in over four years (Rs 1,370 crore seen in March, 2016). Redemptions in equity schemes were up by 22 per cent at Rs 16,622 crore in July.

“The risk-aversion can be gauged from the flows coming in shorter duration debt schemes. There has been strong flows towards such schemes from individual investors, which will help in asset-allocation in their overall portfolio,” Mohanty added. 

For the debt schemes, the net inflows stood at Rs 91,391.73 crore. Low duration funds saw the largest inflows to the tune of Rs 14,219.47 crore. Liquid funds received Rs 14,055 crore of flows. Short duration funds saw Rs 11,509 crore of net inflows, while ultra-short duration funds saw over Rs 9,000 crore of inflows in July.

Corporate bond funds, which largely invests in AAA-rated corporate debt instruments, saw Rs 11,910.18 crore of flows. “Investors have been putting funds in corporate bond funds and banking & PSU funds, as part of the risk-aversion sentiment,” said a debt fund manager. Short duration fund saw Rs 11,509 crore of net flows. The banking and PSU fund category garnered Rs 6,323 crore.

While investors largely avoided domestic equity schemes, schemes investing in overseas markets saw sharp uptick in flows. Fund of fund schemes oriented to foreign markets, saw highest monthly flows in 12 years at Rs 401 crore. It was two-times the previous months’ tally.

In July, the contribution through systematic investment plans (SIPs) stood at Rs 7,830.66 crore, which was one per cent lower than previous month. From peak contribution seen in March, the SIP book has contracted more than 9.37 per cent. Experts say this can be attributed to the lower ticket-size of the new SIP accounts opening up.

Industry executives say that the SIP contribution hovering at over Rs 7,500 crore is still a positive number, in the current environment.

Underscoring the risk-aversion in the markets, Gold Exchange Traded Funds (ETFs) saw largest monthly inflows in five months. Gold ETFs saw Rs 921 crore of net inflows in July.

Within equity schemes, multi-cap funds saw net outflows of Rs 1,033 crore, followed by Rs 579.1 crore in mid-cap funds. Large and mid-cap funds saw net outflows of Rs 466.75 crore, while large-cap funds saw net outflows of Rs 364.95 crore.

Aversion to credit risk funds continued with Rs 669 crore of net outflows. Within hybrid category, balanced hybrid fund saw Rs 2,196 crore of outflows. Arbitrage schemes saw Rs 3,732 crore of outflows.

Assets under management (AUM) for the MF industry stood at Rs 27.11 trillion at the end of July, as against Rs 25.48 trillion in previous month.