The mutual fund (MF) industry has seen a sharp uptick in equity flows in February, with equity schemes garnering over Rs 10,000 crore, climbing the highest level in 11 months, according to industry sources. However, the flows may stem and redemptions pressure increase following the market meltdown of Monday amid mounting cases of coronavirus infection globally.
February’s flow is estimated to be 37 per cent higher, at Rs 10,795 crore, than the previous month’s tally of Rs 7,877 crore.
According to industry executives, investors are showing greater maturity and refraining from pulling out funds at the first signs of weakness in the markets. “Small investors continue to show faith in their equity investments. They have been increasing their SIP (systematic investment plans) allocations in the form of additional purchases,” said a senior executive of a fund house.
“Investors are better prepared to deal with sharp volatility,” said the chief executive officer of another fund house.
Both mid- and small-cap funds have also seen sizeable flows. For mid-cap funds, the flows were Rs 1,797 crore in February, while for small-cap funds, the collections were Rs 1,212 crore. Large-cap funds got the biggest share of flows —Rs 2,626 crore.
The Sensex had corrected nearly 6 per cent in February as coronavirus rapidly spread to multiple countries. The sharp sell-off was witnessed in February’s last week when it was reported that more than 83,000 people in 50 countries were infected with the virus.
Advisors say client queries have spiked after the Sensex witnessed its steepest single-day fall in points on Monday. The Sensex ended 1,941 points, or 5.17 per cent, lower on Monday.
Industry participants say that if market volatility continues, redemptions pressure may rise. “While so far redemptions have not picked up, fresh flows will come under pressure if market correction deepens further,” said Nithin Kamath, founder and chief executive officer of Zerodha, which runs the MF platform Coin.
In February, redemptions had marginally reduced to Rs 13,988 crore, while gross flows increased 13 per cent to Rs 24,784 crore.
According to the data from Value Research, large-cap schemes have given negative returns of more than 8 per cent in the one-month period and mid- and small-cap schemes have given negative returns of 7 per cent each.
“The recent meltdown in the markets has dented the experience of investors in equity schemes, which so far were able to stay in the green despite the sharp market volatility,” said a fund house's senior executive.
Meanwhile, credit-risk funds are showing signs of improved sentiments. In February, the outflows narrowed to Rs 636 crore, from Rs 1,214 crore in January. For liquid funds, outflows were over Rs 40,000 crore as institutional investors pulled out funds for advance tax obligations, according to industry participants.
Debt investors continued to seek pockets of safety, with the banking & PSU fund category and corporate bond funds getting sizeable flows. The banking & PSU fund category received Rs 3,205 crore of flows. Corporate bond funds also drew sizeable flows of Rs 2,840 crore. Short duration funds saw the largest share of debt flows at Rs 4,075 crore.
Experts say duration categories across the yield curve are likely to benefit as bond yields are likely to soften in light of the Fed's rate cut and the Reserve Bank of India's expected dovish stance.