Equity mutual funds inflows at 14-month high; SIP contributions highest-ever

Mutual fund investors continued with their investments in equity funds in May according to data released by the Association of Mutual Funds in India (AMFI). Open-ended equity mutual funds saw a net inflow of Rs 10,082.98 crore in May 2021 as against Rs 3,437.37 crore in April. The inflows are at a 14-month high and are almost back to pre-covid levels. Net inflows in open-ended equity mutual funds schemes for the month of March 2020 stood at Rs 11,722.74 crore.

According to Akhil Chaturvedi, Head of Sales & Distribution, Motilal Oswal Asset Management Company, “This is the third month of net positive flows, with improvement in net sales at Rs 10,000 crore and positive across all categories. Broadly, we understand from the first wave of Covid that these waves will be short-lived and eventually economic activities will revive giving a boost to market sentiments. Therefore, buying on dips always makes sense and which is what reflects in the mutual funds’ sales numbers quite positively.”

Barring equity-linked saving schemes (ELSS), which saw a withdrawal of Rs 290 crore, all the equity schemes witnessed inflows during the last month.

Aashish P Somaiyaa, CEO at White Oak Capital, said the data reflects rise in investor confidence.

“Net inflow of Rs 12,000 crore in equity and equity oriented hybrid funds is a significant jump and a sign of investor confidence – amongst the highest net inflows in a long time especially if one further adds flows into index funds, ETFs and international equity funds. Basis recency bias one is seeing a rising trend of money flowing into international funds and investors need to be wary of trend following piling more and more money into developed market technology stocks in the late stages of a multi-year boom,” he said.

Arbitrage funds receive higher inflows
The interesting element of monthly data was that arbitrage funds received 73% of the inflow (Rs 4,520.88 crore) of all hybrid schemes. “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.

SIPs hit lifetime highs
The contributions under the systematic investment plan (SIP) touched their lifetime highs of Rs 8,818.90 crore in May 2021 versus Rs 8596.25 crore witnessed in April 2021. The March 2021 SIP contribution of Rs 9,182 crore which was higher owing to the weekend dawning at the end of February the rollover of Rs 495-500 crore of February is reflected in March 2021.

“Low-interest rates are driving money into asset classes that beat inflation. Given the current trend as well as the levels of the market, there is a prudent investing strategy by way of SIP in order to average the price of investing,” explained Priti Rathi Gupta, Founder, LXME and MD of Anand Rathi.

Even SIP accounts saw net additions of 8.82 lakhs accounts taking the tally of accounts to 3.88 crore accounts in May 2021 from 3.79 crore accounts in April 2021.

On the debt front, investors withdrew Rs 44,512.04 crore from open-ended debt schemes mutual funds after pumping in Rs 1 lakh crore into last month. Market participants believe that this primarily due to the cash management purpose of corporates and some could be due to rotational in equity funds.

Gold exchange-traded funds witnessed a slowdown in total net inflow to Rs 287.86 crore in May 2021 compared to Rs 680 crore as investors opted for Sovereign Gold Bonds.

The asset under management (AUM) of the mutual fund industry rose to an all-time high of Rs 33 lakh crore in May-end from Rs 32.38 lakh crore in April-end.