Equity flows inch higher as investors pump money to make most of correction

Total flows into MFs up 13% to Rs 9,152 crore; Small-cap funds see 56% surge

The mutual fund (MF) industry received Rs 9,152 crore of equity flows in August, which was 13 per cent higher than previous month. According to industry participants, the uptick in flows could be on account of investors putting in lumpsum money (i.e. one-time investments as against systematic flows) into equity schemes to take advantage of market correction.

"Typically, we do see investors increasing their lumpsum investments when markets see correction. The contribution through systematic investment plans or SIPs, continues to give lot of cushion to the industry flows," said Ashwin Patni, Head - Products and Alternatives, Axis MF. The monthly contribution through SIPs was at Rs 8,230 crore in August, which was marginally lower than previous month.

However, industry participants also feel that this could be signs of investors becoming mature.

"In a month where there has been talks of economic slowdown, equity flows have surprised on the positive side. This shows that investors have matured and are actually increasing allocation to equities when markets have corrected," said Swarup Mohanty, chief executive officer of Mirae AMC.

In the first four weeks of August, the market benchmark Sensex had corrected by 2.7 per cent, before it saw some recovery. In this same period, the broader markets saw deeper cuts with broader market indices -- BSE Midcap and BSE Smallcap -- falling four per cent and 4.5 per cent, respectively.

The mid and small-cap funds garnered net inflows of Rs 2,374 crore in August, which was 6.5 per cent higher than previous month. At Rs 1,307 crore, flows coming into small-cap funds were 56 per cent higher than previous month. The large-cap funds attracted net inflows of Rs 2,582 crore; showing a month-on-month jump of 35 per cent.  

Equity scheme also saw lower redemptions in August. At Rs 7,749 crore, the redemptions were 36 per cent lower than previous month. However, industry players say that it would be key to monitor how flows move in September as selling pressure has intensified. On September 3, the benchmark indices had cracked over two per cent, which was their biggest single-day loss since October last year.

Industry players add that it is heartening to see that investors are not just playing it safe by sticking to large-cap funds, but are also making allocation to mid- and small-cap funds. "Investors are diversifying their portfolios. There is talk of lower 'alpha' in large-cap funds, so they are increasing allocation in mid-cap and small-cap funds to meet their return expectations," Mohanty added.

In industry parlance, alpha is the out-performance a fund generates against the market benchmarks.

On the debt side, investors don't seem to have fully recovered from the credit shocks they have seen on their investments in credit risk funds. These funds saw Rs 2,269 crore of investor ouflows in August. Last month, the category had seen Rs 3,411 crore of net ouflows.

"On the margins, investors might be trying to take fresh investments on credit risk funds. Investor fears have abated, but they have not yet fully gone away," said NS Venkatesh, chief executive of Association of Mutual Funds in India.

The risk-aversion among debt investors could also be gauged from investors' interest in corporate bond funds. Corporate bond funds -- which largely invest in AAA-rated bonds -- received Rs 3,578 crore of net inflows in August; 39 per cent higher than previous month.

Liquid funds -- which is an institutional and corporate-driven product -- received flows of Rs 79,428 crore, which was 74 per cent higher than previous month. However, industry insiders say the flows could reverse in September as corporates tend to use these investments for advance-tax requirements during quarter-ends.

The industry ended the month with assets of Rs 25.47 trillion, which was four per cent higher than previous month.