Investors shrug off volatility, sustain flows into equity MFs

Mumbai: Individual investors pumped money into equity schemes in February for the 12th straight month, undeterred by the stock market volatility due to uncertainties around monetary policy tightening by the US Federal Reserve and geopolitical tensions. Equity mutual funds logged in flows to the tune of ₹19,705 crore in February, higher than January's ₹14,888 crore, data from industry body AMFI showed.

Collections through systematic investment plans (SIPs) fell to ₹11,438 crore, compared with ₹11,517 crore in the previous month. The mutual fund industry's Assets Under Management (AUM) declined to ₹38.56 lakh crore from the previous month's ₹38.89 lakh crore on account of the market decline and outflows from debt mutual funds to the tune of ₹8,274 crore.

"Investors are buying the dip and used the correction as entry point," said Raghav Iyengar, chief business officer, Axis Mutual Fund.

All categories of equity funds got inflows, with the flexi-cap category getting the highest flows of ₹3,874 crore. With two months remaining in the current financial year, tax saving funds or ELSS (Equity Linked Savings Schemes) saw inflows of ₹1,077 crore. Low-cost passive funds saw inflows of ₹5,748 crore due to new fund offerings.

Wealth managers have been recommending flexi cap and large cap funds as these funds invest primarily in larger companies. Blue chips are considered more resilient than mid- and small-cap shares in uncertain times.

Many investors with a lower appetite for risk allocated money to hybrid funds. Dynamic asset allocation funds saw inflows of ₹ 2,118 crore while aggressive hybrid funds, which allocate 65-75% of their portfolio to equities, saw inflows of ₹ 910 crore.

Continued lower returns in the past one year saw investors move away from debt funds. The likelihood of a further rise in bond yields (or fall in bond prices) also led to outflows from some bond fund categories that invest in longer-term papers. Short duration funds witnessed the maximum outflow of ₹12,092 crore, followed by corporate bond funds of ₹10,219 crore and floater funds of ₹10,322.89 crore. Liquid and overnight funds witnessed inflows of ₹40,273 crore and ₹1,296 crore, respectively.

"A possible reason for the net outflows from most of the categories could also be attributed to investors preferring to redeem their debt investments in favour of investing in the equity markets, which after a strong rally, witnessed some correction since November 2021," said Kavitha Krishnan, senior analyst at Morningstar India.