Trend reversal: Equity mutual funds see inflows for the first time in 9 months

• Follow

At last, the Indian mutual fund industry sees light at the end of the tunnel. After witnessing net outflows of over Rs 58,000 crore for eight months between July 2020 to February 2021 in the month of March this trend has reversed. Open & close-ended equity-oriented schemes witnessed a net inflow of Rs 7,376.13 crore according to data released by the Association of Mutual Funds in India (AMFI) on Thursday.

“Lower interest rates and lack of better investment options will certainly bring an appetite for equity asset class back and this perhaps could be the turning point in sales trend for equity mutual funds,” commented Akhil Chaturvedi, Head of Sales & Distribution of Motilal Oswal Asset Management Company

However, open & close-ended equity-oriented schemes ended the fiscal year 2021 with a net outflow of Rs 32,438.35 crore. Commenting on annual performance Kaustubh Belapurkar, Director – Manager Research at Morningstar India said, “FY 20-21 has been a net negative for equity fund flows, given the 8 months of outflows from July 2020 to Feb 2021 as investors looked to book profit and rebalance portfolios to other asset classes as markets bounced back sharply from March lows and made new highs.”

The inflows number for the month of March are healthy and were witnessed across equity fund categories. Additionally, the quantum of redemptions was lower for the month, suggesting profit booking/reallocation to other asset classes slowed down, added Belapurkar.

The contributions under the systematic investment plan (SIP) were also encouraging as the month of March 2021 saw inflows of Rs 9,182.42 crore versus Rs 7,528.14 crore witness in February 2021. Referring to the monthly SIP contributions N S Venkatesh, CEO of AMFI clarified that, “SIP contribution for the month of March 2021 was higher owing to weekend dawning on the end of February the rollover of Rs 495-500 crore of February is reflected in March 2021. So, if we exclude that the actual contributions for the month of March 2021 work out to Rs 8,500-8,600 crore.”

SIP contributions in March 2021 have reached pre-covid levels as the month of March 2020 saw contributions of Rs 8,641 crore. Even SIP accounts saw net additions of 9.61 new accounts taking the tally of accounts to 3.72 crore accounts in March 2021 from 3.55 crore accounts in January.

“It seems like equity investors waiting on the sidelines for a market correction, have started making allocations taking a long-term investing view on equities, as should be the case,” said Belapurkar of Morningstar India.

Venkatesh of AMFI also has a similar view and is of the opinion that SIP contribution will be sustained despite the second wave of COVID-19 as investors would like to catch the upward trend of equity markets.

On the debt front, investors pulled out Rs 52,528 crore from open-ended debt schemes mutual funds last month after investing Rs 1,735 crore in February. “Funds at the shorter end of the curve (Liquid, Low Duration, Ultra Short Duration, Money Market) witnessed outflows as is typically observed during quarter-end.  Banking & PSU funds witnessed a fair bit of outflows as a result of the new guidelines around valuations and fund exposure norms for AT1 bonds,” told Belapurkar of Morningstar India.

Gold exchange-traded funds witnessed a total net inflow of Rs 662 crore last month, compared to Rs 491 crore in February.

The asset under management of the mutual fund industry was at Rs 31.43 lakh crore in March-end, from Rs 31.64 lakh crore in February-end. “The highlight during the pandemic hit 2020-21 has been the rising acceptance for Mutual Funds from Tier II and Tier III locations, with Mutual Fund AUM from beyond the Top 30 cities rising 54 per cent to Rs 5,35,373 Crore as on March 31, 2021, as compared to Rs 3,48,167 crore as on March 31, 2020,” added Venkatesh.