After touching 20-mth low in Feb, MFs see redemptions of Rs 500 bn in March

Mutual funds witnessed huge redemptions of over Rs 500 billion by investors in March on strong outflow from liquid and debt funds, according to industry body Amfi.

Besides, MF schemes saw a net inflow of Rs 2.72 trillion in 2017-18, much lower than Rs 3.4 trillion seen in the previous financial year.

Net inflows into equity MFs slumped to 20-month low of Rs 29.54 billion last month.

"Every year, March month high outflow is a routine phenomenon," Bajaj Capital Senior V-P and National Head-Mutual Funds Anjaneya Gautam said.

"It happens due to high redemptions in liquid funds by big corporates for year closing. Like the trend of many years, even this year also, more than 90 per cent of the redemptions for the March month is in liquid funds. These funds generally come back in the month of April, as per the trend, he added.

According to the Association of Mutual Funds in India (Amfi) data, total redemptions from MF schemes stood at Rs 507.52 billion last month compared with Rs 548.83 billion in March 2017. It had stood at over Rs 730 billion in March 2016.

The latest outflow was mainly driven by contribution from liquid or money market segment. Besides, income segment too witnessed outflow.

Liquid funds witnessed redemptions to the tune of Rs 549.79 billion last month, while income segment saw a net outflow of Rs 137.19 billion.

However, equity segment saw an inflow of Rs 29.54 billion, making it the lowest since July 2016, when such category had witnessed an infusion of Rs 22.21 billion. This could be attributed to investors claiming exemption on long-term capital gains.

Finance Minister Arun Jaitley, in his budget speech, had announced a long-term capital gains tax of 10 per cent on equity gains beginning February 1, 2018 - on gains exceeding Rs 100,000.

Later government clarified that the proposed long-term capital gains tax on equity holdings will apply on profits made from sale of shares on or after April 1, 2018.

"The new tax regime will be applicable to transfer made on or after April 1, 2018 (and) the transfer made between February 1, 2018, and March 31, 2018, will be eligible for exemption under clause (38) of section 10 of the Act," the government had stated in the detailed FAQ (frequently asked question).

Besides, Stefan Groening, Director (Investment Solutions) at Sharekhan said that sentiment and poor market performance are key contributors for weak net flows into equities.

"Investor behaviour in MFs still seems to be impacted significantly by the short term performance of the market. This was also reflected in the fixed income flows," he added.