Investors SIP on equity and small caps, June MF flows more than double of May

Led by small-cap funds, inflows into equity mutual funds rose to ₹8,638 crore in June, higher than May's ₹3,240 crore. Investors have been allocating more to small- cap funds in the last three months as they believe they will benefit the most as economic growth picks up.

Investors continued to stagger their long-term investments using systematic investment plans (SIPs) with collections at ₹14,734 crore marginally lower than the previous month's ₹14,749 crore.

Due to a rise in equity markets and inflows into equity schemes, assets under management (AUM) of the industry touched ₹44.82 lakh crore.


Within equity mutual funds, small- cap funds received a bulk of the flows, followed by mid-cap funds while large-cap, focused and ELSS schemes saw investors booking profits.

"Investors should be cautious and not overexpose their equity portfolios towards small-cap funds, where volatility could be high in near term. At these levels, they need to take a balanced exposure and stagger their investments using SIP/STP," says G Pradeepkumar, CEO, Union Mutual fund.

Within equity, small-cap schemes saw inflows of ₹5,472 crore, while the mid-cap, large- and mid-cap categories saw inflows of ₹1,749 crore and ₹1,147 crore, respectively. Investors pulled money out of large-caps schemes with the category seeing net redemptions of ₹2,050 crore, while focused funds and ELSS schemes also saw outflows of ₹1,018 crore and ₹475 crore respectively. With the broader Nifty 50 and S&P BSE Senex at their all-time highs in June, many investors booked profits in large-cap funds.

Investors also took advantage of the rally in Nasdaq which has moved up by 36% since the start of the calendar year to book some profits, resulting in outflows of ₹510 crore from international fund of fund schemes.

In the debt space, liquid funds and ultra short term funds saw outflows of ₹28,545 crore and ₹1,887 crore. "With June being quarter end, when corporates make advance tax payments, this was expected," says Melvyn Santarita, analyst - manager research, Morningstar India.

However, some inflows were seen in categories like floater and low-duration funds which together saw inflows of ₹5,200 crore.

"Few investors are willing to invest in longer duration bonds in expectation of a cut in interest rates going ahead" added Santarita.

In the hybrid segment, investors allocated ₹3,366 crore to arbitrage funds, as spreads between cash and futures market continued to be attractive at 7%. Multi asset allocation funds - which allocate to equity, debt and gold - found favour with investors seeing inflows of ₹1,323 crore, while equity savings schemes saw inflows of ₹416 crore.

Distributors point out that hybrid schemes are receiving inflows as debt funds no longer offer indexation benefit, making some investors allocate to hybrid funds due to better taxation.