Equity mutual fund flows hit two-year high on NFOs and robust SIPs

Smallcap schemes see moderation in flows as Sebi takes stock of risks

Net inflows into equity mutual fund (MF) schemes surged to Rs 26,860 crore in February the highest since March 2022.

The 23 per cent month-on-month (M-o-M) rise in inflows came on the back of robust collections by new fund offerings (NFOs).

MFs launched 20 schemes in February, collecting Rs 11,470 crore. SBI MF's Energy Opportunities Fund alone raked in Rs 6,700 crore.

On a gross basis, inflows into equity MF schemes have topped Rs 50,000 crore for the third-straight term.

"February net sales came in line with expectations with buoyant market conditions, strong SIP flows and large NFO listing. Accumulation of units at market dips is helping in enhancing the overall portfolio returns. First-time investors continue to use systematic investment plans (SIPs) to begin their mutual fund journey,” said Manish Mehta, national head — sales, marketing & digital business, Kotak Mahindra AMC.

Flows through the SIP route rose to a new high of Rs 19,186 crore, up almost 2 per cent from February’s Rs 18,838 crore, according to Association of Mutual Funds in India (Amfi) data.

"There is a surge in SIP accounts, totalling 82 million with 4.9 million new SIP registrations last month. This underscores investors' unwavering commitment to disciplined wealth accumulation. The industry’s net AUM also touched Rs 54.5 trillion,” said Venkat Chalasani, chief executive, Amfi.

The equity market had a topsy-turvy February as valuation concerns prompted investors to take profits in smallcaps and public sector undertakings (PSUs).

The Nifty Smallcap 100 and the Nifty Midcap 100 posted their first monthly loss after three months, even as the benchmark Sensex and the Nifty managed 1 per cent gain.

Smallcap funds, which were in the news in the last week of February, owing to the regulator's call for additional disclosures and investor protection framework, recorded a moderation in net inflows.

Smallcap schemes together collected a net Rs 2,900 crore, 10 per cent lower than January.

"While gross purchases in the smallcap category continued to be robust over the month, redemptions in smallcaps were the third largest among the equity categories. This is possibly due to investors opting to book profits on the back of a sharp uptick in the performance of this category. Like the smallcap category, midcap also witnessed a drop in net inflows (12 per cent lower compared to January) as it garnered Rs 1,808 crore,” said Melvyn Santarita, analyst, Morningstar Investment Research India.

Even as the flows into smallcap schemes moderated, two of the safer equity fund categories — largecap and flexicap — recorded their best aggregate flows in 17 months at Rs 3,840 crore.

Overall, MFs recorded net flows of Rs 1.2 trillion in February with debt schemes cornering the bulk of the flows. They together garnered a net of Rs 63,800 crore, buoyed by Rs 83,600 crore net inflows into liquid funds. Most other schemes recorded net outflows. The two other major categories, hybrids and passives received net inflows of Rs 18,100 crore and Rs 9,760 crore, respectively.

"Tight liquidity situation has led to higher yields in debt.  Investors now seem to be more constructive about taking exposure in medium and longer duration debt funds. This is visible in flows seen in short term, corporate bonds and long-duration funds," said Anand Vardarajan, business head — banking, institutional clients, alternate products and product strategy, Tata Asset Management.

Flows into active equity schemes have remained positive for the last three years, Amfi said. It added that SIP registrations and folio additions remain robust.

Last month, the industry added 4.9 million SIP accounts and retail MF folios rose from 136 million to 139 million.