Mid, smallcap rush lifts equity MF inflows to five-month high in September

Investors used market correction to raise equity bets, average costs, say experts

Net inflows into active equity mutual fund (MF) schemes rose 31 per cent month-on-month (M-o-M) to a five-month high of ₹38,306 crore in September, as investors continued to ramp up allocations to midcap and smallcap funds.

 

The two categories, which have seen their combined net inflows rise in each of the past four months, attracted a record ₹15,740 crore in September, up 5 per cent M-o-M.

 

“They accounted for approximately 44 per cent of total net equity inflows during September. The sustained interest in these categories, despite the correction in broader markets, suggests that investors continue to remain confident about the long-term growth potential of emerging businesses,” said Himanshu Srivastava, principal, manager research, Morningstar Investment Research India.

 

 

Investors deployed record sums into the two categories as the broader market corrected after a sharp rally in the previous months. The Nifty Midcap 100 declined 7.6 per cent in September, while the Nifty Smallcap 250 fell 3.1 per cent. They had logged gains in each of the previous five months, leading to their outperformance over largecap indices, which have struggled since the start of the US-Iran tensions in March. In September, the Nifty 50 index declined 6 per cent.

 

"Investors seemed to have taken market drawdowns as an opportunity to add to their investments and average their acquisition costs," said Manish Mehta, chief business officer, SBI Mutual Fund.

 

Inflows strengthened across other categories as well. Flexicap funds recorded a 32 per cent M-o-M increase in net inflows to ₹6,702 crore, while largecap funds attracted ₹860 crore after witnessing net outflows of over ₹1,000 crore in each of the previous two months.

 

"The return of positive inflows into large-cap funds is particularly encouraging, as valuations have become relatively attractive, providing a favourable outlook for the category in the future," said Saugata Chatterjee, president and deputy CEO, Nippon India Mutual Fund.

 

The overall increase in net inflows into active equity schemes came as gross investments into active equity schemes rose to a six-month high, while redemptions moderated for the second consecutive month to their lowest level in four months. Net inflows stood at ₹29,329 crore in August, making September’s collections the highest since April.

 

The inflows were supported by systematic investment plan (SIP) inflows, which rose by nearly ₹200 crore to a new high of ₹32,490 crore, according to data released by the Association of Mutual Funds in India (Amfi).

 

"SIP contributions stood at ₹32,490 crore, with 100.6 million contributing SIP accounts during the month, reflecting continued investor participation in systematic investing," said Venkat Chalasani, chief executive, Amfi.

 

However, debt funds recorded a net outflow of ₹1.8 trillion, largely driven by quarter-end withdrawals from liquid and other short-duration funds to meet advance tax payments and other liquidity requirements. The outflows, along with mark-to-market losses, resulted in a 5 per cent M-o-M decline in assets under management to ₹87 trillion.