Mumbai: Net flows into equities, including those linked to savings scheme funds, fell to just ₹5,122 crore in February after hitting a 24-month low of ₹6,158 crore in January, indicating a deepening slowdown in the mutual fund industry. Inflows into equity linked savings scheme (ELSS) funds fell around 26% to₹1,174 crore in February from ₹1,585 crore a year ago.
Income Funds, which include most debt fund categories, saw outflows of ₹4,214 crore, with rising concern over defaults and downgrades in India’s debt market. Gilt funds, a debt fund category counted separately, also saw an outflow of ₹149 crore compared to outflows of ₹89 crore in January 2019. In fact, except equity mutual funds, exchange traded funds (ETFs) and fund-of-funds investing overseas, all the mutual fund categories saw high levels of outflows in February.
Mutual funds as a whole saw a net outflow of ₹20,083 crore for February, propelled by an outflow of ₹24,509 crore from liquid funds/money market funds.
The slowdown is the result of a host of factors, including political uncertainty and liquidity tightness, according to the Association of Mutual Funds in India (Amfi) chief executive officer (CEO) N.S. Venkatesh.
In sharp contrast to the equity inflow slowdown, the other ETF category, as distinct from gold ETFs, saw a rise in net inflow from ₹721 crore in January to ₹5,234 crore in February.
This was on account of the Bharat 22 ETF, the third tranche of which was launched by the government in February, according to Venkatesh. The issue was massively oversubscribed with subscriptions of around ₹50,000 crore. The government had itself set a target of raising ₹3,500 crore with the option of retaining another ₹9,500 crore. A comparison of the total retained amount of ₹13,000 crore with the net inflow figure of₹5,234 crore for the other ETF category suggests that even this ETF saw the exit of a large chunk of money.
This is largely because of the poor returns over the past year, according to Suresh Sadagopan, founder, Ladder 7 Financial Advisories. “We keep saying that investors are maturing but a long downturn pushes investors back to their old ways,” he said.
Mahesh Mirpuri, a Chennai-based mutual fund distributor, highlighted continued investor disenchantment with balanced funds. Many of the balanced funds were sold to get regular income from dividends, which dried up as the markets performed poorly.
Swarup Mohanty, CEO, Mirae Asset Mutual Fund, attributed the slowdown to over-allocation to midcaps, which have failed to perform, and uncertainty over the coming elections. According to AMFI data, there was an outflow of ₹1,077 crore in balanced funds in February compared to an outflow of ₹952 crore in January.
Net SIP (systematic investment plan) flows for February were marginally higher at ₹8,095 crore compared to ₹8,064 crore in January, according to Venkatesh.
SIP flows have steadily risen over the past couple of years, though the trend has flattened out over the past four months. “The slowdown in net inflows even as SIP flows have been stable indicates outflows by lumpsum investors,” according to Amol Joshi, founder, Plan Rupee Investment Services.