Equity mutual funds saw net outflows of Rs 2,480 crore in July, as investors looked to book profits as stock markets continued to surge, despite the overall economic uncertainty driven by the COVID-19 pandemic. This is possibly the first withdrawal in equity funds in more than four years.
Except for focused equity funds, which saw inflows of Rs 535 crore and tax-saver ELSS funds, which saw inflows of Rs 279 crore, investors net pulled out money from all other equity mutual funds, data from Association of Mutual Funds of India showed.
As the virus spread, equity markets crashed in March, with the benchmark BSE Sensex touching a low of 25,638.9. Since then, however, markets have only rallied with the Sensex trading above 38,200-level on Monday; that is a 49 per cent jump from the March lows. “Markets are going up only and not coming down. Only marginal corrections are happening and for every correction, the mutual fund investor is taking out money from equity schemes; he is booking his profits,” said N.S. Venkatesh, CEO of AMFI.
Hybrid funds, which invest in a basket of stocks and debt instruments, also saw investor appetite ebb, with outflows of Rs 7,301 crore, last month. The largest outflows were from arbitrage funds (equity-oriented hybrid funds that aim to profit from the price differential of a stock in the spot and futures market) at Rs 3,732 crore and balanced hybrid funds, which saw outflows of Rs 2,196 crore.
“With equity markets doing well and stable scenarios in fixed income markets, hybrid schemes witnessed significant net outflows, with this scenario being viewed as a good exit opportunity,” said Himanshu Srivastava, associate director—manager research, Morningstar India.
Net equity assets under management last month stood at over Rs 7.37 lakh crore and hybrid schemes AUM was at Rs 3.03 lakh crore.
Despite, the outflows from equity funds, the overall mutual fund industry saw net inflows of Rs 89,812.78 crore, on the back of strong inflows into debt funds as concerns that had emerged following closure of a few debt schemes by Franklin Templeton earlier this year eased, while gold and other exchange traded funds were also in strong demand.
Last month, gold ETFs saw inflows of Rs 921 crore, taking their total assets under management to Rs 12,941 crore, as global investor appetite towards the safe haven asset remained high. Other ETF categories saw inflows surge Rs 13,126 crore to AUM of almost Rs 1.99 lakh crore, largely due to the good response received for the Bharat Bond ETF.
Many investors are also parking their money into liquid funds and low duration funds, considering they are low risk, which along with inflows in corporate bond funds, helped the total flows into debt mutual funds rise Rs 91,391.73 crore, taking the net debt AUMs as on July 31 to Rs 12.64 lakh crore.
Venkatesh cited several reasons for the inflows into debt funds. “One, the worry relating to Franklin Templeton would have receded; two, the steps taken by SEBI, RBI and the asset management companies themselves in restructuring their portfolios. We are also in a benign interest rate environment, so you get a better yield here, so people would rather put their money in these debt funds.”
Even as investors pulled out money from equity mutual funds, the retail flows via systematic investment plans have only seen a marginal reduction. The SIP contribution in July stood at Rs 7,830 crore, compared with Rs 7,937 crore. While, more than 11 lakh new SIP accounts were opened last month, over 7 lakh SIP accounts were closed, which partly could be due to the end of the term or partly due to people discontinuing, said Venkatesh.
He stressed that mutual funds were goal-based investing and people should not redeem their money prematurely, especially if their goals haven’t been met.
The total SIP AUMs as of July 31 stood at Rs 3.19 lakh crore.
