Mutual funds turn net buyers, invest Rs 2,476 crore in equities in March

Mutual funds invested Rs 2,476 crore in equities in March, making it the first such infusion in 10 months, as consolidation in the market provided investment opportunities to fund managers.

Kaushlendra Singh Sengar,founder and CEO at INVEST19, said mutual funds (MFs) inflow in equities will be stagnant in near future.

Prior to the inflows, mutual funds (MFs) had been withdrawing money from equities since June 2020,data available with the Securities and Exchange Board of India (Sebi) showed.

"The markets were a bit volatile in March and at one point of time it was around minus 4 per cent to 5 per cent from the beginning of the month. If we see last few quarters, the market continued to surge and many investors were opting to book profits,"Harshad Chetanwala, co-founder of Mywealthgrowth said.

 

He, further, said some signs of consolidation in the market do give opportunities to fund managers to invest in good ideas if they find them attractive.

"While we will have to wait for industry body Amfi's data on subscription and redemption, volatility in markets would have also paused the redemption till certain extent and hence the fresh flows also would have found its way in the market as well," he added.

Harsh Jain, co-founder and COO of Groww believes thatthe redemption pressure on mutual funds is reducing as the markets have remained consistent and there have been no major declines in the market despite the second wave. That might be helping with the investor's sentiments.

In addition to that, many new opportunities are emerging in the stock markets as economic recovery of India takes shape and investors become more comfortable with the idea of investing in riskier assets like equities as opposed to traditional assets like FD, gold, he added.

"In the recent weeks, with the rising cases in India, the markets have seen some minor correction from which there have been quick recoveries also. Before that, the markets had been rising sharply over a few months. Mutual funds used these dips to buy new stocks and add to existing ones also," Jain noted.

According to Sebi data, MFs put in a net amount of Rs 2,476.5 crore in equities in March.

Before that, MFs withdrew Rs 16,306 crore from equities in February, Rs 13,032 crore in January, Rs 26,428 crore in December, Rs 30,760 crore in November, Rs 14,492 crore in October, Rs 4,134 crore in September, Rs 9,213 crore in August, Rs 9,195 crore in July and Rs 612 crore in June.

These outflows were mainly due to profit booking by investors amid rally in stock markets.

However, MFs had invested over Rs 40,200 crore in the first five months (January-May) of 2020. Of this, Rs 30,285 crore was invested in March 2020.

The latest investment by mutual funds was dueto financial year closing as people mostly look for tax benefits while making an investment and equity-linked saving scheme (ELSS) funds are tax-saving equity mutual funds,Sengar ofINVEST19 said.

ELSS allowed a tax deduction of up to Rs. 1.5 lakh under section 80C. Also locking period in ELSS is only three years which is lesser as compared to other tax-saving investment products.

According to Sengar, equity has outperformed in terms of return as compared to other investment assets classes, which is another attraction for people to invest in ELSS.

"I think a lot of investors have still not got a hang of the true nature of this beast that is the stock market,"Rahul Shah, co-head of research, at Equitymaster said.

"At a time when more money should have poured into equities when the markets had turned attractive last year, we saw consistently declining net inflows, which eventually turned into net outflows come July 2020. And now, when the markets are touching record highs and where one should exercise caution, we've seen net inflows," he said.

This behaviour is detrimental to their long-term returns from equities and therefore they should be careful of not making this mistake over and over again. The idea is to be fearful when others are greedy and greedy when others are fearful and not the other way round, Shah added.

On the other hand, mutual funds put in over Rs 14,000 crore in debt markets in the month under review.

Apart from mutual funds, Foreign Portfolio Investors (FPIs) have put in Rs 10,482 crore in the Indian equity markets in March after investing Rs 25,787 crore in February, Rs 19,472 crore in January and Rs 1.7 lakh crore in the entire 2020.