NFOs mania takes equity MF inflows to record Rs 22,584 cr in July

A flurry of 28 NFO (new fund offering) saw mutual funds investors pumping in as much as Rs 22,583.52 crore in the month of July 2021 in open-ended equity mutual funds compared to Rs 5,998.17 crore in June 2021. The current month inflows are highest in the past 17 months when India went into lockdown in March 2020 led by the outbreak of Covid 19.

As per data released by the Association of Mutual Funds in India (AMFI) on Monday, within the open-ended equity-oriented schemes, the Flexi Cap fund category saw a net inflow of over 50% or Rs 11,508.24 crore against just Rs 1,087.11 crore witnessed in the previous month. Of these ICICI Prudential AMC’s offering – ICICI Pru FlexiCap Fund — collected nearly Rs 10,000 crore through its NFO. The issue has received more than four lakh retail applications and the NFO was sold by over 15,000 distributors.

Commenting on fund flow numbers Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India said, “The past month has remained exceptionally good for equity funds, with the market witnessing a net inflow of Rs 22,583.52 crores. A significant portion of the inflows are attributable to the NFO’s that were launched over the past month. An improving investor sentiment, driven by a surge in the markets and a positive investor response towards NFO’s have contributed to the inflows over this period.”

The other element in the monthly data was that of sectoral or thematic funds which received 25% of inflow (Rs 5,728.54 cr) in open-ended equity-oriented schemes. The inflow in thematic funds came in higher primarily due to two NFOs raising around Rs 3,900 crores with the trend of the day being pharma funds.

Hybrid funds continue to be in flavour

Apart from sectoral and thematic funds, hybrid funds continued to be in demand as all hybrid schemes put together saw a 58% jump in net inflows from Rs 19,481.07 crore versus Rs 12,361.47 crore in June 2021.

Among the hybrid schemes Arbitrage fund were the most preferred that has seen consistent inflows over the past few months. In the month of July 2021 the category registered an net inflow of Rs 14,924.43 crore compared to Rs 9,059.57 crore in June 2021.

“Essentially an arbitrage fund protects the downside. So, when markets start moving up or the market starts moving down depending upon the way the market there will be some money coming into the arbitrage funds to protect their portfolio that is where it is happening now, the markets are moving up and moving up pretty fast every day. Some of these people who are risk-averse would rather put their money in arbitrage funds thinking that okay the arbitrage fund will protect their at least their capital plus marginal return.,” said N. S. Venkatesh, Chief Executive of AMFI.

That apart arbitrage funds are also tax efficient. “Arbitrage funds makes sense when money is to be parked for 6-12 months. Since they fall under equity mutual fund category they are taxed as per short term capital gain rate of 15% whereas debt funds are taxed as per your income tax slab which can be higher than 15%,” explained Kaustubh Belapurkar, Director – Manager Research at Morningstar Investment.

SIPs on a record-breaking spree

The contributions under the systematic investment plan (SIP) continued to break records for the third month in a row as it touched lifetime highs of Rs 9,608.86 crore in July 2021 Rs 9,155.84 crore in June 2021 versus Rs 8,818.90 crore witnessed in May 2021. Although the March 2021 SIP contribution stood at Rs 9,182 crore which consisted of Rs 495-500 crore of February reflecting the month of March owing to the weekend dawning at the end of February.

The markets have been on a positive trajectory as expectations over the return to normalcy have been driven by the pace of vaccinations. Positive earnings growth and an overall improvement in the global, as well as domestic liquidity, have also led to an increase in investments. The overall positive increase is also reflected in healthy growth in the SIP book, added Krishnan.

Even the number of SIP accounts came in at record highs with the month of July 2021 witnessing a net addition of 15.24 lakhs accounts taking the tally of accounts to 4.17 crore accounts in from 4.02 crore accounts in June 2021.

“A lot of investors have also been preferring the SIP route given the increased awareness around investing. Moreover, this has been a great way to invest small amounts on a consistent basis. It’s also a great way of investing for first-time investors,” Krishnan said.

Asset under management via the SIP route also saw a growth of 4% and surpassed the Rs 5 lakh crore mark for the first time ever.

Folio growth

At 10.54 crore folios, the mutual fund industry has added whopping 50 lakh folios for the first time ever, within a short period of just months. To put into perspective, this meteoric rise in the last two months, the industry added just 74 lakh folios in the whole of last 12-month period between April 2020 to March 2021.

Folios under retail schemes at 8.72 crores is also at an all-time high, with massive 55 lakh folios alone being added since April 2021. In the last fiscal, ie 12 month period from April 2020 to March 2021, only 18 lakh retail folios were added.

“RBI’s accommodative stance, healthier earnings growth, vaccination-driven steady containment of Covid pandemic and global and domestic liquidity is driving the Equity markets to historic highs. Taking a cue, retail investors are participating in the equity rally, largely through mutual funds, on a continued rising quantum at record levels,” Venkatesh added.

Debt funds

On the debt front, investors poured in Rs 73,694.04 crore into open-ended debt schemes mutual funds last month after a marginal inflow of Rs 3,566.39 crore in June 2021.

“A majority of this has been driven by the liquid and the money market fund. Floater funds have also been witnessing positive flows owing to the uncertainty around interest rates. While the money market, liquid ultra-short term and floater funds continue to witness flows, most of the other debt categories continue to witness outflows. Credit funds have been an exception to this and have been witnessing inflows for the third consecutive month,” explained Krishnan of Morning Star.

Gold ETFs & AUM

Gold exchange-traded funds witnessed a marginal net outflow of Rs 61.49 crore compared to Rs 359 crore in June.

The asset under management of the mutual fund industry rose by 4.90% to touch a new high of Rs 35.31 lakh crore in July 2021 compared to Rs 33.66 lakh crore in June 2021. “IMF has forecasted 9.8% growth for India making it fastest growing economy in the whole world. So, we are growing at a fairly fast clip. Money will continue to flow into the Indian markets which will give equity investors decent returns,” Venkatesh added.