MF investments in stocks remain tepid in July

Fund managers bought a net Rs 240 cr of shares, even as the benchmark Sensex posted its biggest monthly advance since May

Mutual fund (MF) investment in stocks remained tepid in July for a second straight month.

Fund managers bought a net Rs 240 crore of shares, even as the benchmark Sensex on the BSE posted its biggest monthly advance since May. Last month, MFs were net sellers to the tune of Rs 86 crore.

The lacklustre buying comes as redemption pressure at equity MFs has increased amid the markets climbing to 15-month highs. Foreign institutional investors, on the other hand, pumped nearly $1.4 billion (nearly Rs 10,000 crore) into stocks in July.

Sector officials say savvy investors, putting money in large chunks over the past year, have been taking money off the table. These investors feel the lofty valuations don’t leave enough room for the markets to rally from current levels.

“It is not that fund managers are sitting on high cash. Redemptions have gone up. Smart investors see less probability of a further rise in the markets, given the fact that several of the positives are already priced in,” said Ritesh Jain, chief investment officer at Tata MF.

Around Rs 3,300 crore of regular monthly investments by way of Systematic Investment Plans (SIPs) are proving a saving grace for the sector, say experts. If not for these, the net inflow into equity schemes might turn negative, they say.

So far, there haven’t been any considerable cancellations or terminations of investments under the SIP route. Gross sales in the equity category has remained robust at a little above Rs 10,000 crore on a monthly basis. This is helping counter the redemptions.

Though purely diversified equity funds are taking a hit, the balanced fund category continues to gain momentum among investors. The sector also offers dynamic asset management funds in the balanced category, which has found several takers. Put together, the assets under management of balanced funds are now Rs 46,000 crore. It is a more than double rise over the past two years.

Nimesh Shah, managing director, ICICI Prudential MF, said: “The dynamic asset allocation funds have been created to address the fact that investors shy away from investing when the markets are cheap and rush to buy when valuations are high. So, these products tend to do the opposite – buy more equity when risk is low (low price to book value) and vice versa.”

He feels Indian investors also care more about limiting the downside than only generating high returns, which come with risk. Hence, such products fit well for a wider set of investors.

Investors are increasingly preferring balanced funds in order to have the benefit of equity as well as debt assets and also to shield themselves from the steep volatility Indian stock markets are known for.