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Equity mutual funds registered a staggering inflow of Rs 2.86 lakh crore in the past 11 months bolstered by the ban on high value currency notes, latest industry data showed.
The sudden spike in bank deposits and consequent decline in interest rates following demonetisation on November 8, 2016 led to surge in inflow into equity mutual funds, an analyst said.
According to the Association of Mutual Funds in India (Amfi) data, equity funds received an inflow of Rs 2.86 lakh crore from November 2016 to October 2017. Prior to that, such funds had registered flows of Rs 1.5 lakh crore between October 2016 and December 2015.
"Along with that optimism of investors, demonetisation actually helped the industry to attract more investments. We have seen Rs 2.86 lakh crore coming into the mutual funds but we have also seen some redemptions. After taking into account redemptions, we have a net inflow of Rs 1.35 lakh crore.
"The gross figure will give the real picture of money invested in the sector, because investors might have redeem amount, which it had invested in 2015 or 2014," Harshad Chetanwla, head customer delight at Quantum AMC, said.
While overall assets under management (AUM) rose 32 per cent since November 2016, the equity AUM grew by 46 per cent after the note ban.
Overall, the asset base of the MF industry, comprising 42 players, reached an all-time high of Rs 21.41 lakh crore in October-end, while that of equity AUM was over Rs 6.32 lakh crore.
"The traction in inflow equity funds could be attributed to several factors. One, post demonetisation, there has been a clear increase in money coming into regulated market products such as mutual funds," said Vidya Bala, head of Mutual Fund Research at FundsIndia.
"Secondly, a slash in fixed deposit rates has seen retail money coming into equity markets through the MF route. Money from unwinding of deposits may also have entered mutual funds. Third, with SIPs as a way of investing picking up among individual investors, equity funds have seen a steady increase in inflows as retail money, unlike institutional money, tends to be more sticky and steady," she added.
Echoing views, Bajaj Capital CEO Rahul Parikh said that the increased flow of domestic investor capital in equity mutual funds is a part of the ongoing shift of household savings from physical assets like property and gold to financial assets like equities and bonds, a process that has been accelerated post demonetisation.
Systematic investment plans (SIPs), which have been the preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk, saw monthly collections growing to Rs 5,621 crore last month from Rs 3,434 crore in October 2016.
The asset base of B-15 cities currently account for 17.7 per cent of the overall industry AUM, up from 17 per cent in Oct 2016 prior to demonetisation.
"B-15 cities have been witnessing a lot of activity around investor awareness and demonetisation was a much needed shot in the arm to help spur investments from smaller centres," Morningstar Director - Manager Research- Kaustubh Belapurkar said.