Equity MF inflows down 15% in July despite record smallcap haul

Redemptions rise across most categories as market recovers

Net inflows into equity mutual fund (MF) schemes fell 15 per cent month-on-month (M-o-M) to ₹24,697 crore in July even as the combined inflows into smallcap and midcap funds surged to record highs.

 

Net inflows into smallcap funds surged 39 per cent M-o-M to a record ₹7,768 crore, while midcap fund inflows rose marginally to ₹6,192 crore. The combined net inflows at ₹13,437 crore accounted for 54 per cent of the net equity inflows in July.

 

All other categories, except multicap funds, witnessed a decline in net inflows. Largecap funds recorded a net outflow of ₹1,322 crore.

 

“Money follows performance. Markets bottomed out in March, and since then mid and smallcaps have led the recovery, comfortably outperforming the broader market, while largecaps have lagged and dragged the index down. Flows have simply followed that pattern,” said Santosh Joseph, chief executive officer, Germinate Investor Services.

 

The trend, according to experts, suggests that investors continue to retain confidence in the long-term growth prospects of emerging businesses despite elevated valuations. 

 

"The willingness to deploy fresh capital into these categories also reflects investors' comfort with taking calculated exposure to higher-growth segments of the market. Besides, the recent recovery in the mid- and small-cap segments appears to have reinforced investor confidence," said Himanshu Srivastava, Principal, Manager Research, Morningstar Investment Research India.

 

Flexicap funds garnered the third-highest net inflows — of ₹4,709 crore. The category, which has collected large sums consistently in the past two years, crossed ₹6 trillion in assets under management (AUM) for the first time last month.

 

Overall, the decline in net investments resulted from a sharp rise in redemptions. Compared to June, gross inflows were up 3 per cent in July while redemptions surged 16 per cent, according to data released by the Association of Mutual Funds in India.

 

Gross systematic investment plan (SIP) inflows were up marginally at ₹31,961 crore.  

 

Indian equities had a volatile but positive July, with the Nifty and Sensex gaining around 2 per cent during the month. The market was supported by strong domestic corporate earnings, easing oil prices and renewed foreign investor buying.

 

Debt-oriented schemes saw a turnaround in July. After a steep net outflow of ₹1 trillion in June, debt funds garnered a net inflow of ₹1.87 trillion in July. The reversal was led by liquid funds and overnight funds, which had seen heavy redemptions in June. Liquid and overnight funds routinely see heavy redemptions at quarter-end as institutions pull money out to meet advance-tax payments and quarter-end balance-sheet requirements. The flows reverse the following month.

 

Demand remains weak in the rest of the debt fund categories.

 

Overall, the positive inflows across categories along with mark-to-market gains took the industry’s AUM to a new high of ₹85.6 trillion.

 

"The industry's AUM grew 4.3 per cent MoM to reach ₹85.76 trillion in July. The increase was largely driven by higher market value and sustained buying by DIIs. Equity funds recorded ₹24,697 crore in net inflows—marking the 65th consecutive month of positive flows," said Venkat Chalasani, Chief Executive, Amfi.