Inflow in equity mutual funds plunged by 68 per cent to Rs 6,480 crore in April, over the preceding month, as investors took a “wait and watch” approach in allocating additional investments to the investment class.
However, this was also the 26th consecutive month of inflow in the equity class, which was primarily driven by fund infusion in small-cap and mid-cap categories, data released by the Association of Mutual Funds in India (Amfi) showed on Thursday.
Overall, the 42-player mutual fund industry witnessed a sharp turnaround in April as it attracted Rs 1.21 lakh crore, on huge contributions from debt-oriented schemes, after seeing an outflow of Rs 19,263 crore seen in the previous month. Debt funds saw a net infusion of Rs 1.06 lakh crore following an outflow of Rs 56,884 crore in the preceding month.
The sharp inflow led to the asset under management of the 42-player industry rising to Rs 41.62 lakh crore as of April-end from Rs 39.42 lakh crore at the end of March.
Going by the data, equity mutual funds attracted Rs 6,480 crore in April as compared to a record inflow of Rs 20,534 crore registered in the preceding month.
“We believe since March witnessed good inflows in equity. Investors probably took a wait and watch approach to allocating additional investments to equity in April while continuing with their existing SIPs (Systematic Investment Plans),” Manish Mehta, National Head and Sales, Marketing & Digital Business, Kotak Mahindra Asset Management Company.
“The rise in valuations could have made investors stay away from fresh investments or take off some money to take advantage of the rally in the market,” Sriram BKR, Senior Investment Strategist at Geojit Financial Services, said.
The National Stock Exchange’s benchmark index Nifty 50 rose 4 per cent in April.
Within equities, the small-cap category and the midcap category once again led the charge receiving flows of Rs 2,182 crore and Rs 1,791 crore respectively.
Though flows across equity categories have reduced since the turn of the year, none of the categories witnessed net outflows except the Focused equity category which saw an erosion of Rs 131 core from its coffers.
“Given the sharp uptick in the markets seen recently, investors may have chosen to be on the sidelines and wait for a more opportune time to invest into equities,” Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
Equity schemes have been witnessing net inflow since March 2021. Before this, these schemes had witnessed outflows for eight months from July 2020 to February 2021, losing Rs 46,791 crore.
Within the debt funds, all the categories witnessed net inflows except for credit risk and Banking and PSU Fund segments. Expectedly, categories having shorter maturity profiles were the biggest beneficiaries.
Liquid funds received the highest net inflows of Rs 63,219 crore during the month followed by money market fund (Rs 13,961 crore) and ultrashort duration fund (Rs 10,663 crore) category.
“After meeting the tax liabilities of the last financial year in March, corporates would have parked their excess investible money in liquid fund and ultra-short duration fund categories, for a short period, thereby leading to huge inflows in these categories,” Srivastava said.
Also, investors would have preferred to invest in categories with shorter maturity profile such as low duration, money market and short duration funds since there is still some degree of uncertainty over the direction that the Reserve Bank of India (RBI) could take with respect to interest rates going ahead, he added.
Apart from equity and debt funds, other schemes — index funds, gold exchange-traded funds (ETFs), other ETFs and Funds of funds investing overseas — saw an inflow of Rs 6,945 crore. This was mainly driven by other ETFs, which contributed Rs 6,790 crore alone. However, Fund of funds investing overseas witnessed a net withdrawal of Rs 117 crore.
G Pradeepkumar, CEO of Union Asset Management Company Pvt Ltd, said, “It is encouraging that the flows have remained positive in April. Historically, April is a relatively quiet month after the hectic activity in March. So not too much should be read into the net flows being lower compared to March. We are confident that the momentum will pick up in the coming months.”
V K Vijayakumar, chief investment strategist at Geojit Financial Services, said, “April witnessed a 700 point rally in Nifty after continuous decline in the first three months of 2023. This rally triggered some profit booking in large-cap funds. This explains the sharp dip in large-cap inflows in April compared to March.”
He added that it is important to understand that April inflows are normally subdued after high activity in March in response to year-end activity. Debt mutual funds are likely to witness continued decline in inflows since the tax benefits from indexation are not available from 1st April onwards.
“The healthiest trend in inflows is the resilience of SIPs in spite of high market volatility. This is in contrast to the sharp decline in active trading accounts in the last nine months,” he said.
(With PTI Inputs)
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