Investor flows into equity MFs slow down, hybrid schemes accelerate

Investors shift preference amid elevated market level

Equity mutual funds (MFs) received net inflows for the six consecutive months in August, however, the magnitude of flows slowed compared to the previous month.

The data from Association of Mutual Funds in India (Amfi) showed equity-oriented schemes saw net inflows of Rs 8,667 crore in August as against a record Rs 22,584 crore in July, a drop of nearly 62 per cent.

Industry observers said inflows into equity schemes over the past few months have propelled on account of huge collections in certain new fund offerings (NFOs). Sticky inflows through systematic investment plans (SIPs) too has lent stability to equity flows despite markets trading at elevated valuations.

Amid concerns over lofty market levels, investors are seen moving their investments away from equity into the hybrid category, which invests in a mix of debt and equity.

Aashish Somaiyaa, chief executive officer at White Oak Capital said, “There is a significant shrinkage in the net flow for equity category and corresponding bump up in net inflow of the balanced advantage category. This leads one to believe that on aggregate industry level large balanced advantage NFO has garnered a lot of traction by way of switches from equity to balanced advantage category.”

Hybrid schemes, which include balanced advantage funds, multi asset allocation funds and arbitrage funds, recorded net inflows of Rs 18,706 crore. The category saw record flows as SBI Balanced Advantage Fund collected Rs 14,551 crore in its NFO last month.

“From a retail investors’ perspective in the short term it may not be a bad development given elevated market levels and generally lower risk perception of balanced advantage funds,” said Somaiyaa.

In August itself, Sensex and Nifty were up by 9.4 per cent and 8.7 per cent respectively.

Out of 11 equity categories, five categories such as multicap, largecap, smallcap, value and equity linked saving schemes (ELSS) saw net outflows in August. While flexicap and focused funds saw highest flows of Rs 4,741 crore and Rs 3,072 crore respectively in August.

However, SIP book continued to remain robust and the SIP contribution in August stood at Rs 9,923 crore compared to Rs 9,609 crore in July. The SIP AUM rose to Rs 5.26 trillion.

New SIPs registered during August 2021 at 2.49 million was the highest-ever for the industry.

NS Venkatesh, Chief Executive, Amfi said record high SIP assets under management (AUM) and monthly contribution was “reflective of established and rising retail preference towards mutual funds as a long-term wealth creation avenue.”

While debt-oriented schemes saw net inflows of around Rs 1,074 crore in August. Overnight funds saw highest outflows of Rs 11,808 crore followed by low duration and liquid funds. Overall MF industry saw net inflows of Rs 32,976 crore and net assets under management as on August stood at Rs 36.6 trillion.

Market participants say that even if there is correction in the market, they don’t foresee sharp outflows from the SIPs as investors have understood the benefits of staying in the market.

Kailash Kulkarni, CEO at L&T MF said, “As long as markets don’t fall continuously over a period of months, we will continue to see investors coming in MFs. Last year, in March markets corrected by 35 per cent in two weeks, but later it rose, and we started seeing flows coming back very strongly.”