The mutual fund (MF) industry saw a sharp bounce in equity flows in December, with equity schemes garnering Rs 4,499 crore of flows or 3.4x last month’s tally. The contribution through systematic investment plans (SIPs) touched an all-time high of Rs 8,518 crore, continuing its steady growth month-on-month.
The jump in flows comes after a 78 per cent decline in November, the second-lowest tally seen in 39 months.
Industry players were relieved and hoped this could be beginning of a sustainable recovery. "If we continue to see further improvement next month, then we can conclude that November's figures were an aberration," said Swarup Mohanty, chief executive officer of Mirae MF.
In November, equity flow declined to Rs 1,311 crore as investors took advantage of a market rally and took money off the table. These were the lowest levels seen in three-and-a-half years. Industry participants say market stability will be an important factor for a sustainable recovery.
"If market volatility continues, it could take more time for flows to normalise back to previous levels," said Anthony Heredia, chief executive officer of Baroda MF. Further, participants hope announcements in the upcoming Union Budget will lift investor sentiments.
On Monday, the benchmark indices — Sensex and Nifty — lost about 2 per cent amid escalating tensions between the US and Iran.
Source: Association of Mutual Funds of India
However, the December flows were still 31 per cent lower than the previous 12-month average of Rs 6,544 crore. In calendar year 2019 (CY19), equity schemes collected Rs 76,423 crore of flows, 40 per cent lower than previous year’s tally of Rs 1.27 trillion. Contribution through SIPs saw a marginal improvement of 1 per cent in December.
Industry players say that though SIPs’ steady growth is a positive, equity flows being significantly below SIP flows doesn't bode well.
“On a SIP book of around Rs 8,000 crore, these levels of equity flows don’t give much comfort. If collection in equity schemes remains at these levels or lowers, it can be a matter of concern for the industry,” said Prathit Bhobhe, managing director and chief executive officer at Tata MF.
At Rs 1,134 crore, large-cap funds accounted for one-fourth of equity flows. However, industry participants took comfort in the fact that mid-cap funds garnered Rs 796 crore of flows (or 17 per cent of equity flows) in December.
“We were expecting flows into mid-cap funds to come down further, as investors have found it difficult to make money in this category. However, the strong flows are a surprise for the industry," Mohanty added.
At Rs 71,158 crore, liquid funds saw bulk of outflows, which industry observers attributed to quarter-end pullouts by institutional investors to meet advance tax requirements.
“These outflows were expected and in line with the past behaviour of institutional investors," said NS Venkatesh, chief executive of Association of Mutual Funds in India.
Risk-aversion on credit funds continued amid fears of downgrades and defaults. Credit risk funds saw Rs 1,190 crore of outflows in December. In current financial year (since scheme-wise break-up is available), credit risk funds have seen outflows of Rs 20,602 crore.
Overall, debt funds saw Rs 78,426 crore of net outflows. AUM for the industry dipped 2 per cent to Rs 26.54 trillion at December end.