Equity flows into mutual funds strong in February despite stock decline

Investor flows into mutual funds (MFs) remained strong last month, despite the markets suffering their worst monthly setback in two years.

Equity schemes have reported net inflow of Rs 163 billion in February, the highest in three months, despite the benchmark indices falling five per cent. More than half of these were on account of Systematic Investment Plans (SIPs), a facility where investors commit to invest a fixed sum every month.

These, say observers, underscore the trend of consistent inflow, irrespective of market direction. All categories of equity funds, barring information technology schemes, took a hit of three to seven per cent in their net asset value (NAV) during February. Large-cap, mid-cap, small-cap, multi-cap and other thematic funds also saw negative returns.

Overall inflow during February was a little over Rs 121 billion, taking the total of assets under management (AUM) at the4 month-end to Rs 22.2 trillion. However, sequentially, the AUM saw a marginal dip, from Rs 22.4 trillion at end-January. The erosion in assets was mainly on the back of stock corrections and outflows from income funds, worth Rs 98.7 billion during the month.

Equity MFs have seen net inflow of Rs 1.64 trillion since April. A little over Rs 600 billion or about 40 per cent of these have come through the SIP route.

Using the strong money flows, fund managers' net investment in shares was Rs 1.3 trillion in the April 2017-February 2018 period, covering 11 of the 12 months in the financial year.

However, with the market correction extending this month, fund managers are not ruling out some moderation in fresh inflow. They add, however, that SIP flow will not be impacted. With the monthly SIP book now at Rs 70 billion, the MF sector is well placed even if huge lumpsum investment dries.

Currently, a little more than a third of sectoral assets are in equity schemes. The rest are predominantly in the debt category.