Mutual funds net inflows crash by 95%

Equity inflows have slowed down as many investors are waiting for clarity on their own future cash flows. Redemptions are still lower than the March outflow of Rs 18,386 crore.

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Some investors redeemed their funds when markets rallied. Many others are waiting for further fall.
Redemptions from equity funds rose sharply and non-SIP inflows slowed down in June even as markets recovered much of the lost ground. Investors pulled out Rs 13,520 crore from equity funds, up from Rs 7,693 crore in the preceding month, shows AMFI data. Non-SIP inflows in June stood at Rs 5,834 crore, down from Rs 21,468 crore in March. As a result, the net inflow into the segment for June was a paltry Rs 240 crore. This is the lowest since April 2016 and translates into a 95% drop over the previous month’s flows. It is also less than 3% of January and February inflows into equity schemes.

The sharp uptick in stock markets has pulled fund values to close to pre-selloff levels. The frontline indices have gained 40% since the March lows. Experts feel this has prompted some investors to pull out money. “The drop in net flows into equity funds could be attributed partly to profit booking on the back of the rally in June 2020,” says G. Pradeepkumar, CEO, Union AMC. This has been seen in the past as well. Whenever markets rebound from a sharp correction, investors take out money as they recover capital. Meanwhile, many others have been waiting on the sidelines anticipating another round of selloff. Arun Kumar, Head of Research at FundsIndia, says, “Some investors have also been caught by surprise by the rally and are still waiting for lower levels to enter back.”

Some of the pullout in June can also be explained by the severe cash crunch faced by individuals amid salary cuts and job losses. Kumar explains, “Equity inflows have slowed down as many investors are waiting for clarity on their own future cash flows.” Redemptions are still lower than the March outflow of Rs 18,386 crore. However, fresh purchases of equity funds in March were also high at Rs 30,109 crore, indicating many took advantage of lower stock prices.


Inflows into equity funds have fallen sharply, but SIPs have remained steady
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Source: AMFI

Interestingly, monthly SIP contributions have not slowed down significantly. June SIP inflows stood at Rs 7,927 crore compared to Rs 8,123 crore in May. While this marks the third consecutive month of dip in SIP flows, it is not much lower than the peak in March when SIP flows touched Rs 8,641 crore. “That the monthly SIP contribution has been slowing down is worrying, but it is not unexpected given the strain on incomes of investors,” says Pradeepkumar. The number of SIP folios saw a marginal jump to 3.23 crore from 3.20 crore. The AUM from SIPs rose to Rs 3 lakh crore from Rs 2.76 lakh crore.

In the debt fund category, investors continued pulling out money from credit risk funds. The segment saw redemptions to the tune of Rs 1,630 crore—it was Rs 5,265 crore in the previous month. Liquid funds saw the largest exits at Rs 4.37 lakh crore, resulting in net outflow of Rs 44,226 crore. This can be attributed to quarter-end actions by companies. Corporate bond funds and Banking & PSU funds continued to witness robust flows as investors looked for more safety in returns. Among other categories, arbitrage funds and gold ETFs also saw high inflows, continuing the trend of preceding months.
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