Goodbye equity funds

MUMBAI: Mutual fund equity schemes saw more money flowing out in August, despite the buoyancy in the stock market. Income funds, however, continued to witness strong inflows, according to the latest monthly statistics by the Association of Mutual Funds in India (AMFI). Since the correction in mid-May, equities have been volatile, affecting the performance of equity schemes.

In August, investors sucked out Rs 650 crore from equity schemes at the net level, more than thrice the Rs 209 crore they had pulled out in July. Industry watchers feel it is mostly institutional investors who are shifting from equity funds to debt funds.

According to A Balasubramanian, chief investing officer, Birla Sun Life MF, “Institutional investors usually don’t invest in equity for any long-term gains. Short-term profits is all they seek. Especially with such volatility in the market, they would prefer fixed income funds.” However, he added that for mutual funds, an outflow of Rs 650 crore is not really a cause for concern when the total assets under equity funds is more than Rs 88,000 crore.

Mr Balasubramanian pointed out that retail investors are increasingly investing in equity schemes, but mainly through Systematic Investment Plans (SIPs). Under this plan, the investor puts in a fixed amount every month, which enables him to average out his cost of acquisition of mutual fund units.

Although net redemptions were higher in August, gross inflows during the month were more than those in July (Rs 3,887 crore vs Rs 2,436 crore in July). Investors have been flocking to income funds (those that invest in debt instruments) over the last few months. The trend further strengthened in August, with these schemes witnessing net inflows worth Rs 7,826 crore (Rs 5,114 crore in July). ET had reported last week that among the inflows into income funds, Rs 7,000 crore was added by a slew of Fixed Maturity Plans (FMPs) that were launched during August.

FMPs are mutual funds that try to give regular dividends to investors who have bought units of these types of mutual funds. Though returns are not guaranteed and are subject to market risk, they are an ideal choice for investors with a moderate risk appetite. “Last month there was a big rally from 8.30% levels to 7.75% levels in bond yields. It is very likely that investors may have tried to cash in on this rally by entering FMPs and other short-term funds,” said Sameer Kamdar, national head, mutual funds, Mata Securities.

The performance of liquid funds was not as impressive as was seen in July. On a month-on-month basis, net inflows into these funds fell to Rs 3,950 crore from Rs 15,517 crore. “Liquid fund flows are usually determined by the amount of liquidity in the system,” said Ved Prakash Chaturvedi, CEO, Tata Mutual Fund.

“In June there are usually large scale redemptions from liquid funds because it is the quarter end — and institutions have to balance their accounts. Hence, in July all the money came back and we saw high inflows.” He feels much should not be read about the decreased inflows in August.