Equity mutual funds see net outflows in July after 4 years

Some investors prefer to stay in cash after sharp rebound in stock market, but SIP folios see 400,000 additions

Equity mutual funds witnessed the first month of net outflows in July after four years as jittery investors preferred to stay in cash after the sharp rebound in the stock market since late March. Growing concerns over the modest longer-term performances of several equity schemes also contributed to the redemptions from the product category, said analysts. Debt schemes, especially those investing in shorter-term top-rated papers, however continued to attract flows with investors opting for safety over risk.

Equity schemes saw net outflows worth Rs 2,480 crore in July. This is the first time since March 2016 that investors have net redeemed from this product. In June, equity schemes got Rs 240 crore — their lowest monthly flows in four years — as against Rs 5,246 crore in May.

Large-cap, multi-cap and mid-cap schemes witnessed outflows during July. While some investors pulled money out of equity schemes on expectations that the bounce is temporary, a section of them-mostly businessmen redeemed because of cash flow issues amid the economic slump.

“Many businessmen have cash flow issues because of the lockdown and need to create liquidity. This sharp equity rally has given them an opportunity to take money off the table,” said G Pradeepkumar, CEO, Union Mutual Fund. The Nifty has rebounded 48.1% since March 23 when the index touched a four-year low dragged down by the sell-off.

“High networth investors and family offices which had over-allocated to equities since 2017-18 are cutting a bit of their exposure by using this first leg of the rally to book profits,” said Radhika Gupta, CEO, Edelweiss Mutual Fund.


Small Retail Investors Keep Trust in SIPs
The net outflows would have been much sharper but for the continued investments in equity schemes through systematic investment plans (SIPs) — a system that allows regular investments into mutual fund schemes similar to banks’ recurring deposits. SIPs attracted Rs 7,831 crore in July against Rs 7,927 crore in June. Pradeepkumar said the addition of 400,000 SIP folios in July suggests smaller retail investors continue to put money in equity schemes.

Mutual funds managed close to Rs 7.3 lakh crore of investor money in equity schemes as on July against Rs 4.2 lakh crore in December 2016. The raging bull run since 2016 coupled with a sizable shift in savings from real estate and gold to financial assets such as equities following the government’s demonetisation programme resulted in a rush of flows into equity schemes. Following the crash in mid- and small-cap schemes starting January 2018 and the subsequent two-year underperformance, many equity schemes have underperformed, prompting some investors to reconsider some of their investments here.

According to an ET study on data from Value Research done in July, average SIP returns from the large-cap, multi-cap, midcap and small cap scheme categories for three and five years are below 5%. SBI’s fixed deposit offers 5.3% rate every year.

“Investors have been worried about underperforming funds and have used the rally to shift them to gold or international funds,” says Viral Bhatt, founder, Money Mantra.

International funds witnessed flows worth Rs 400 crore while gold schemes saw investments worth Rs 921 crore. Gold prices in international markets hit a record high last week.

Hybrid schemes that invest in a mix of debt and equity saw outflows of Rs 7,301 crore. Debt schemes shrugged off worries about safety of this product after the Franklin Templeton fiasco and saw inflows of Rs 91,392 crore. Total assets under management of the mutual fund industry grew by Rs 1.21 lakh crore to Rs 27.28 lakh crore against Rs 26.07 lakh crore in the previous month.

Corporate bond funds saw inflows of Rs 11,910 crore, while low duration and short-duration debt funds saw inflows of Rs 25,750 crore. Banking & PSU debt funds saw inflows of Rs 6,323 crore.

Arbitrage funds saw outflows of Rs 3,732 crore as returns dwindled to less than 4% on an annualised basis.

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