MFs' equity AUM shrinks in August; first dip since April last year

However, inflows remain robust in despite a 6.5% crack in key stock indices

Equity assets of India’s mutual fund (MF) sector shrank in August for the first time in 16 months, amid a sharp drop in stock prices. According to data from the Association of Mutual Funds in India, equity assets under management (AUM) reported a fall of 2.8 per cent over July or Rs 11,000 crore to Rs 3.83 lakh crore in August.

The benchmark indices last month had dropped 6.5 per cent, their biggest month's drop in nearly five years.

The decline in equity AUM would have been much sharper if not for the robust investor inflow into equity schemes.

Equity schemes offered by domestic MFs saw inflow of a little above Rs 9,000 crore, while gross sales (not adjusting for outflows) were around Rs 16,600 crore in August. Even so, equity AUM is about double compared to March 2014. The sharp increase is largely led by robust investor flows.

“The faith in equities hasn’t still been shaken. As this was the first correction in this market, people generally are more confident. The real test will come when you have another correction, deeper than the first one. If there are more months of decline, this hypothesis will be tested,” said Anoop Bhaskar, head-equity, UTI MF.

After a 6.5 per cent drop in August, the benchmark indices are currently down a little over five per cent so far this month.

“We were concerned that retail would yet again start shying away from investing in equities, as our market has lost all its gains made over the past one year. There are doubts whether inflows will continue if the markets continue to crack at this rate,” said a senior official with a leading fund house.

The market could crack more, say observers, if retail flows lessen and foreign investors continue selling. The benchmark indices are down nearly 20 per cent from their 2015 peak. As the markets became more volatile with a downward bias, fund managers have continuously been recommending investors to keep calm and have patience, while continuing a systematic investment plan. They say such corrections should be seen as opportunities to buy from a long-term perspective.

Prashant Jain, chief investment officer of HDFC MF, said: "Corrections led by external factors have proved to be good entry points on occasions when Indian markets were not overvalued. I believe this is one more such opportunity."

It appears investors, thinking in line with fund managers, used dips to buy and kept pouring funds. However, whether it would sustain if the situation does not improve is to be seen.

As on end-August, the total AUM of the sector was Rs 12.55 lakh crore, against Rs 13.17 lakh crore the previous month.