Equity schemes clock largest outflows in 7 years as redemptions pick up

Gold ETFs drew largest monthly flows in five months amid risk-aversion

Equity mutual fund (MF) schemes in July witnessed the largest net outflow in seven years, with investors pulling out Rs 2,480 crore last month. Also, the monthly figure turned negative for the first time in four years.

Industry experts attributed this to investors’ lack of confidence in the sustainability of the recent market rally amid economic uncertainty. The July figure was the worst since October 2013 (Rs 3,542 crore), when the US had witnessed “taper tantrum” after investors learned that the Federal Reserve was slowly putting the brakes on its quantitative easing (QE) programme.  Besides, redemptions in equity schemes were up 22 per cent at Rs 16,622 crore in July. The last time the flow turned negative was in March 2016 (Rs 1,370 crore).

Industry observers say there has been profit-booking, with high net-worth investors (HNIs) taking money off the table amid the market run-up. “This can be attributed to profit-booking by HNIs and also some investors waiting on the sidelines,” said N S Venkatesh, chief executive of Amfi. “Investors are not convinced whether the sharp rally seen in recent months can be sustained. It appears to be a call taken to conserve cash, with investors not being comfortable with the run-up,” said Swarup Mohanty, chief executive officer, Mirae Asset Management Company.

The frontline index Nifty gained over 7 per cent in July. Since March lows, the 50-share index has been up over 48 per cent, even as economic uncertainty remains following the Covid-19 outbreak.

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

 

 

For debt schemes, net inflow stood at Rs 91,391.73 crore. Low duration funds saw the largest inflow 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 inflow, 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 of net flow. Banking & PSU fund category garnered Rs 6,323 crore.

While investors largely avoided domestic equity schemes, schemes investing in overseas markets saw sharp an uptick. Fund of fund schemes oriented towards foreign markets saw the largest monthly flow 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 1 per cent lower than the 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 positive, in the current environment. Underscoring the risk-aversion in the markets, gold-exchange traded funds (ETFs) saw the largest monthly inflow in five months. Gold ETFs saw Rs 921 crore of net inflow in July.

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

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