Equity flows into mutual funds drops sharply, liquid schemes rebound

Flows into equity mutual fund (MF) schemes declined 33 per cent and those into liquid- and money-market schemes rebounded 2.5 times in November, according to data released by an industry association Association of Mutual Funds in India (Amfi).

Industry players attributed the reduction in equity flows to spike in market volatility. They said investor sentiment towards debt schemes was improving because the impact of the IL&FS crisis was fading and bond prices were rallying amid sharp drop in global crude prices.

Equity schemes reported inflows of Rs 84 billion in November as against Rs 126 billion in the previous month. The drop was despite flows into systematic investment plans (SIPs) remaining close to Rs 80 billion. About 95 per cent of SIP flows are towards equity schemes.

The assets under management (AUM) for the equity segment stood Rs 7.71 trillion, up four per cent. The benchmark Sensex had gained five per cent in November, after dropping as much as 15 per cent in the previous two months.

Inflows into liquid schemes stood at Rs 1.36 trillion in November compared to Rs 550 billion in October. At the height of IL&FS crisis in September, over Rs 2 trillion had flown out of liquid and money market schemes.

“Slowly the confidence is coming back. The worries of the credit event are seen abating and investors are returning to money markets,” NS Venkatesh, chief executive officer, Amfi.

The IL&FS default hit the mutual fund industry after investors into liquid funds had become risk-averse. Liquid fund AUM account for nearly a fourth of the MF industry. Fund houses with exposure to IL&FS debt papers had to mark down their holdings.

Industry players say the sentiment in the debt market has improved with bond yields coming off sharply.

After climbing to a four-year high of 8.12 per cent in September, the yield on the benchmark 10-year government security is currently at an eight-month low of 7.46.

Experts say yields have cooled off as plunge in the Brent crude prices and recovery in the rupee have eased macro-economic pressure.

Thanks to the surge in liquid inflows, the overall AUM of the MF industry rose by eight per cent to Rs 24 trillion in November from Rs 22.2 trillion at the end of October.

On a year-on-year basis, industry AUM is up just five per cent. However, the industry is targeting a 25 per cent jump in asset base over the next one year.

“India becomes the fastest growing economy and with inflation rates slowing down, equities are expected to perform better in the near future. We are hopeful that next year, many more investors will choose MFs as their preferred option to grow their wealth. We see the industry growing by 20 per cent and AUM reaching Rs 30 trillion by end of 2019,” said Venkatesh.