Gush of money to continue: Good returns, few options to drive fund inflows

As India’s benchmark indices trade at all-time highs, inflows into equity mutual fund schemes are breaking new records every month. Investors have poured over Rs 1.3 trillion in the current financial year so far, almost double of what they invested in the whole of FY17.

Systematic investment plans (SIPs) are the biggest driver with monthly inflows through the route now worth Rs 62 billion per month — more than six times the average inflows during the post-Lehman crisis rally in 2009 and 2010. It shows in the industry’s asset under management (AUM) that has trebled in the past five years to over Rs  21 trillion now against Rs 7 trillion at the end of 2013. Assets under equity segment quadrupled during the period to Rs  8 trillion — a new high.

The outlook on inflows looks bright given that majority of the equity schemes have generated 30 to 50 per cent returns to their investors in the past one year. This is attracting new investors with equity-folio accounts now touching 50 million while total number of folios have surpassed 66 million.

Fund managers expect the momentum to continue, given bullish sentiment on the Dalal Street and their performance in the past one-year. “ Indian investors now understand the benefits of long-term investment and no more fret about market volatility in the short term. We can see this in the strong inflow through the systematic investment route,” says Nimesh Shah, managing director of ICICI Prudential Mutual Fund.

Others see a long-term opportunity in low penetration of mutual fund products in India and the growing financial awareness among retail investors. “Investors are fast realising the importance of mutual funds from the long-term perspective. Though inflows are at historic highs, but given the low penetration of fund products, I think it is just a beginning. There is huge potential to tap and inflows will only rise from here on,” says Sundeep Sikka, chief executive officer (CEO) of Reliance Nippon Life Mutual Fund.

Inflows into equity mutual funds have also got a boost what analysts and fund managers call the Tina factor — there is no alternative to equity right now. Poor outlook on Indians’ hot favourite assets — real estate and gold — have considerably helped in shifting of money from physical assets to financial assets; of which mutual funds are clear beneficiaries. 

“There are a few good investment opportunities for savers right now outside equity markets. Gold prices haven’t gone anywhere in past five years, while house prices have declined in most markets when adjusted for inflation. And, interest on bank fixed hardly covers consumer inflation,” says G Pradeepkumar, CEO, Union Mutual Fund.

However, fund managers are now trying to moderate investors’ expectations, particularly for those who wish to invest now. “It’s not wise, at this stage, to come into the markets looking at the past few years’ high returns. That will be suicidal — investors should know that they are buying into an expensive market which may turn into a bubble if there is another 10-15 per cent rise from here,” says a top fund manager, requesting anonymity.

Many milestones

• Equity inflows cross Rs 1.3 trillion in FY18
• Overall assets treble in last five years to Rs 21 trillion
• Equity folios count touches 50 million mark
• Equity AUM at all-time high of Rs 8 trillion
• Majority of equity schemes delivered 30-50% return in last one year