Profit booking shrinks equity MF inflows in November to 21-month low

Redemptions rise 60% month-on-month to Rs 26,030 crore in November, the highest since September 2021

Net investments in active equity mutual fund (MF) schemes plunged to Rs 2,260 crore in November, even as systematic investment plan (SIP) inflows rose to an all-time-high of Rs 13,300 crore, shows the latest data from the Association of Mutual Funds in India (Amfi). The net inflows are lowest since February 2021.

The net inflows were dragged down by a surge of redemptions. In November, investors pulled out Rs 26,030 crore from active equity schemes, 60 per cent more than the previous month and the highest since September 2021.

According to Amfi's N S Venkatesh, outflows swelled as investors booked profits. "There have been outflows from retail schemes as people are encashing profits, the reason being increased consumption owning to the festive season," the Chief Executive Officer (CEO) of the industry body said.

Feroze Azeez, Deputy CEO of Anand Rathi Wealth, believes the outflows may have stemmed from redemptions by high net worth individuals (HNIs) and profit-booking in largecap-heavy schemes (largecap and flexicap funds) on the back of good performances by these categories in recent months. "HNIs may have pulled out money as they are known to read too much into valuations and other market data. Moreover, given that the net negative inflows are in schemes which have got the benefit of the recent concentrated rally in larger companies, investors seem to have booked profits," he said.

Net inflows in the top two equity schemes — flexicap and largecap —  turned negative in November. While investors pulled out Rs 1,040 crore net from largecap schemes, flexicap funds suffered an outflow of Rs 860 crore.

The NSE Nifty 50 had logged monthly gains of 4.14 per cent in November.

The data is in line with the recent observation that equity MF investors look to cut down exposure following a market rally and re-accumulate during corrections. In a recent report, ICICI Direct pointed out that there have been at least three instances in the past 4-5 years when investors increased their equity MF investments when the market was on a downslide.

The study showed that average monthly inflows into active equity schemes rose almost 5x between November 2021 and June 2022 (when the market was declining from the all-time-high achieved in October 2021) as compared to the preceding months. In another instance (August to October 2022), when the market was on the rise, average monthly inflows declined to Rs 5,900 crore from Rs 15,500 crore during the November 2021-June 2022 phase.

MF executives feel the outflows are a temporary phase and net inflows will rebound in the months ahead.

"Retail investors have faith in the MF Industry growth, therefore they will re-enter the market quickly. We believe the upcoming budget will bring cheer to the market which will clear the pathway to more inflows in various schemes," said Venkatesh.

"Instead of reading too much into month on month dip in net equity inflows, the heartening thing to note is that net equity inflow has remained relatively resilient and investors are willing to look past short term trends and instead focus on long term fundamentals," said Akhil Chaturvedi, Chief Business Officer, Motilal Oswal Asset Management Company.

The net inflows into debt schemes also came in at a low of Rs 3,670 crore. However, there were some positive signs as inflows into some medium-to-longer horizon schemes like corporate bond fund and dynamic bond fund showed good positive inflows after a long spell of net outflows.

In November, investors invested a net of Rs 3,470 crore in corporate bond funds against Rs 1,530 crore net outflow in October. The inflows was negative despite the fact the yields had risen to good levels in October.

Fund managers and MF distributors say good yields, which are an indication of future returns, is not enough to attract investors. They say investors will return only after debt funds have better performances to show.

According to the Amfi CEO, inflows in debt funds will stabilise once the RBI rate hike is over.