Equity mutual funds may see net inflows for fourth straight month

Market participants say that redemption pressure has slowed down, and new sales have gone up substantially in the month of June

Equity mutual funds are likely to have registered net inflows for the fourth consecutive month in June. Strong returns over the previous year and positive news on the vaccination front encouraged investors to continue with equity MFs.

Though official data has not yet been released, market participants say redemption pressure has slowed, and new sales rose substantially in June.

Sunil Subramaniam, managing director (MD), Sundaram Mutual, said, “Initially during the start of the second wave there were some concerns. But the matter was quickly sorted out and there is good news on the vaccination front. Overall, the economy is likely to bounce back strongly. Slowly retail investors are regaining their confidence in the Indian economy and the market.”

Most equity sub-categories, such as large-cap funds, flexi-cap funds, and mid-cap funds, saw a steady increase in assets under management (AUM) on a month-on-month basis in June.

Among the categories that saw the biggest jump in assets were flexi- and mid-cap funds. The flexi-cap category saw its AUM increase from Rs 1.7 trillion at the end of May to Rs 1.76 trillion in June, shows data from Association of Mutual Fund in India (Amfi). The mid-cap segment saw its AUM increase by Rs 7,844 crore to Rs 1.34 trillion in June.

“Investor’s confidence has also increased as returns of systematic investment plans (SIPs) have turned positive,” said Subramaniam.

Over the past year, large-cap funds have provided average returns of 51 per cent, while mid- and small-cap funds have given returns of 75.5 per cent and 104 per cent, respectively.

Industry players also say that several investors have continued to invest through SIPs even as the market touched new highs and have not booked profits like last year.

“This time last year many investors had paused their SIPs. Now we are seeing these investors resuming their investments and also incremental money flowing into the equity funds through SIPs. In the last three months, equity funds have seen strong net inflows and we expect positive trend to continue going forward,” said Ashutosh Bishnoi, MD and chief executive officer at Mahindra Manulife MF. 

Between July 2020 and February 2021, equity schemes saw cumulative net outflows of around Rs 46,700 crore, even as the benchmark Sensex surged more than 40 per cent. However, in the subsequent three months equity schemes made a comeback and witnessed net inflows of around Rs 22,600 crore. Another reason equity funds continue to see inflows is because equity offers better returns in the current scenario than debt funds. However, given the valuations of the Indian markets, investors should not enter for short-term gains.

Rushabh Desai, a Mumbai-based MF distributor, says, “Given the scenario and till most of the population is vaccinated, we are advising investors to continue only through SIPs and not through any lump-sum investments.”