Equity mutual fund inflows nearly triple in August as investors pump money in small, midcaps

In the last few years, more so since the Covid-19 pandemic, Indians have taken to investing in mutual funds in a big way and that seems to continue unabated. In fact, inflows into equity mutual funds in August nearly tripled month-on-month amid a rush to invest in small cap, mid cap and sectoral funds.

According to data from the Association of Mutual Funds of India (AMFI), equity mutual funds saw inflows of Rs 20,245 crore in August, compared with Rs 7,626 crore in July.

The surge was even as the large cap fund category saw outflows of close to Rs 349 crore last month. While investors were selling large cap funds, they pumped in Rs 4,265 crore in small cap funds and Rs 2,512 crore in mid cap funds. Even the large and mid cap fund category saw inflows of Rs 2,113 crore. Sectoral or thematic funds and multi-cap funds were also on investors' radar, with inflows of Rs 4,806 crore and Rs 3,422 crore respectively, the AMFI data showed.

The rush to invest in mid and small caps has driven indices to record highs. The BSE MidCap index hit a life high of 33,084.79 in intraday trading on Monday. It is up close to 31 per cent so far in 2023. Similarly, the BSE SmallCap index also hit an all-time high of 38,603.18 in Monday's trading. The SmallCap index is up 33 per cent so far this year. In contrast, the benchmark BSE Sensex has risen 10.3 per cent in 2023.

According to Sriram BKR, senior investment strategist, equity fund inflows last month were the fifth highest in the last four years, which was also partially aided by new fund offerings (NFO).

NFO sales during the month came in at Rs 7,531 crore, up 117 per cent from three-month average across 15 schemes, pointed Sriram.

"Clients are increasingly favouring the multicap route, signalling a shift in market dynamics. We have witnessed encouraging flows across various categories like large and midcap, flexicap, midcap and smallcap," said Anand Vardarajan, business head - institutional clients, banking, alternate investments and product strategy at Tata Asset Management.

With markets continuing to exhibit a bullish outlook (the Nifty50 index hit an intra-day life high of 20,008.15 on Monday), investors remain drawn to equity as an attractive asset class, said Akhil Chaturvedi, chief business officer at Motilal Oswal AMC.

For August 2023, retail assets under management (equity funds, hybrid funds and solution oriented schemes) stood at Rs 24.63 lakh crore. Contributions via systematic investment plans (SIP) hit an all-time high of Rs 15,813.54 crore. The number of SIP accounts were also at their highest ever at almost 6.97 crore.

"The record SIP contribution is a testimony of the Indian investors' long term approach to building wealth by investing through small ticket sized SIPs," noted NS Venkatesh, CEO, AMFI.

While equity funds saw huge inflows, debt funds had a contrasting story. Debt funds saw outflows of Rs 25,872.50 crore in August. This was largely driven by outflows of close to Rs 26,824 crore from liquid funds. Overnight funds, corporate bond funds and floater funds were among the debt fund categories that saw good inflows last month.

"The major quantum of net outflows was witnessed by the categories having less than one year duration profile such as liquid, ultrashort and low duration. Given the current interest rate scenario and uncertainty over the direction of interest rates in the country, it appears that many investors continue to adopt a cautious stance and waiting for further indication on interest rate to take investment decision," said Melvyn Santarita, analyst - manager research at Morningstar India.

The rally in stock markets could also have prompted investors shift their focus from debt to equity, he added.