Mutual fund investors hold steady despite SIP losses, shows latest AUM data

Even as the sharp fall in the equity market has led to losses for systematic investment plan (SIP) investors over the one-year period, the pace of inflows into equity mutual funds (MFs) is unlikely to see a major drop.

 

The latest assets under management (AUM) data for equity MF schemes show no signs of major outflows from key schemes. As of January 28, the AUM of largecap funds was down only 3.7 per cent since the end of December 2024, compared to a 4.3 per cent fall in the Nifty 100.

 

Similarly, assets managed by smallcap funds are down 11.5 per cent, compared to a 14.7 per cent slump in the benchmark Nifty Smallcap 250, according to data from the Association of Mutual Funds in India.

 

Changes in AUM depend on two factors — the quantum of inflow or outflow and the change in value of underlying assets due to market movement.

 

Equity MF schemes have not seen net monthly outflows since February 2021, as the post-pandemic rally in the equity market and the resultant strong performance of equity MFs led to over 30 million new MF investor additions.

 

In 2024 alone, over 10 million investors entered the MF fold, bringing the total unique investor count to 52.6 million. 

 

The majority of these investors use the SIP route to invest in equity MF schemes. However, most of these investors are now sitting on losses, with the one-year SIP returns of almost all diversified equity schemes turning negative.

 

In the flexicap category, 34 of the 38 schemes have delivered negative SIP returns over a one-year period, with the worst-performing scheme eroding almost one-third of its investors' capital, according to data from Advisorkhoj.

 

“Markets were trading at expensive valuations, and hence, a correction was warranted in the first place. The decline is a reality check for investors who are over-allocated to equities despite expensive valuations. While we haven’t seen the behaviour of many new investors during a corrective phase, most investors are unlikely to reduce their equity exposure when the market has corrected considerably, unless they are overly stretched into equities,” said Chirag Mehta, chief investment officer of Quantum MF.

 

However, SIP investment accounts opened three years ago remain in good shape. The average three-year SIP returns for the regular plan of flexicap schemes is 16.3 per cent compound annual growth rate (CAGR). The top fund has delivered over 16 per cent CAGR.

 

The inflows into MF schemes in January have acted as a cushion for the equity market amid foreign institutional investor selling. During the month (until January 28), MFs had deployed Rs 55,849 crore into the equity market.

 

According to experts, while the market has corrected appreciably, it may not be the right time to make large equity investments. The valuations, they say, are still ahead of fundamentals in midcaps and smallcaps.

 

"After almost four years of outsized returns, a slowdown in return expectations should be expected as we may have borrowed returns from the future. Even after the correction, midcaps and smallcaps, in general, are expensive in pockets. Weak (low growth + low quality) midcaps and smallcaps still have froth, and caution is advised," PGIM India MF said in a recent note.