Inflows in equities dip as investors throng to debt, says AMFI data

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The monthly data release by Association of Mutual Funds of India (AMFI) today threw light on investor’s growing propensity towards debt mutual funds. Equity funds saw a sharp drop in their inflows during May, 2023. Small-cap funds saw maximum fund influx amongst equity funds, at Rs 3,282 crores. On the other hand, usually bankable large-cap mutual funds saw outflows worth Rs 1,362.28 crore last month. 

Discouraging trends for equity 

Investor confidence in large-cap mutual funds was low in April as well, when they managed to garner just Rs 52.65 crores. Small-cap funds, on the other hand, saw marginal growth since last month, when they had seen an influx of Rs 2,182 crores.

According to Gaurav Rastogi, Founder and CEO of Kuvera, an online wealth management platform, “India is in a sweet spot globally with high private and government capex expected in the next few years. A lot of it will be in manufacturing and will benefit small manufacturing companies. The policy environment is also supportive so there are reasons to believe that this run up has many more legs to go.”

Liquid funds saw inflows worth Rs 45,234.22 crores, dipping marginally from its April collection of Rs 63,219.33 crores. Overnight funds also saw Rs 18,910 crores flowing out. However, as CA Nitesh Buddhadev points out, when there is a looming tax payment deadline or a quarter end, these funds usually see an outflow. Even ELSS, seen as tax-saving instruments, saw outflows worth 504.6 crores

Notably, the first installment of advance tax payment is due on June 15, the month is also important from furnishing information regarding TDS. 

Arbitrage funds, too, have doubled on their inflows in May, compared to April, 23. Last month saw funds worth Rs 6,639.64 crore into arbitrage funds, while April registered inflows worth Rs 3,716.23 crores. Such funds capitalise on a security’s price difference in two or more markets to gain. While they are taxed as equity mutual funds, the ongoing volatility in stock markets have made them a hot favorite. 

Moreover, as per Value Research, arbitrage funds have yielded returns of 0.64% over a one-month period, almost at par with returns delivered by debt mutual funds. 

ETFs make a comeback The report underlined how 391 equity mutual fund schemes mobilised Rs 3,240.3 crores last month, while 316 debt mutual fund schemes raised Rs 45,959.03 crores during the same time. One of the reasons for this was RBI raising repo rates, which made investing in the debt market far more attractive. But, as Palka Arora Chopra, Director, Master Capital Services Ltd points out, “RBI’s latest decision to maintain the repo rate at 6.5% are sufficient to manage inflation and support fixed-income markets, aided by increased liquidity from deposits of Rs. 2000 notes, government spending, and RBI interventions”. 

Passive investment instruments ETFs also made a comeback. While gold ETFs fell out of favor this month, other ETFs saw consecutive inflows for the second month, at Rs 4,523,74 crores. In April, this figure stood at Rs 6,790.45 crores.