Market voices talk about reasons such as LTCG, portfolio reallocation, among others as reasons behind the fall, but believe that the trend will pick up going forward
After a buoyant 2017, the current year has been a rather volatile one for D-Street. Benchmark indices have corrected around 10 per cent off their highs, even as it witnessed bouts of rally. And the first casualty seen in this environment has been on the part of investors into mutual funds as redemptions have risen.
According to the data from Association of Mutual Funds in India (AMFI), net inflows into equity funds have more than halved in March to Rs 6,600 crore from Rs 16,270 crore in February.
A few fund managers believe that data for March is usually not reflective of the general, persistent trend, but are confident of overall steady trends.
“Net sales were lower, but overall gross sales have been stable … a few categories such as Balanced ones have seen a hit. This is due to the overall correction in the market and the changes in tax situation as well. Having said that, right now there is no sign of worry and the situation continues to be robust. April (flows) so far look reasonable and there has been no dramatic change in gross sales. " Ashwin Patni, Head - Products and Fund Manager, Axis Mutual Fund, told Moneycontrol.
Meanwhile, some market voices have attributed long term capital gains tax (LTCG) as a key reason by the downward move.
“Unwarranted panic on the back of LTCG tax and its implications, (ii) institutional redemptions possibly due to advance tax payments, and (iii) those who wanted to rebalance portfolios, either from dividend mode to growth mode or a general reallocation between debt and equity are seen as reasons behind the redemption ,” Kalpesh Ashar, Founder, Full Circle Financial Planners and Advisors told Moneycontrol.
The withdrawal of this kind is raising a query on whether investors are a worried bunch, who have developed cold feet? Will a trajectory like this continue going forward as well?
“…The recent consolidation provides a favorable buying level. Further, with improved quarterly earnings result, it is expected to rebuild the sentiment among investor which is likely to improve inflow in mutual funds. This is a temporary phenomenon and doesn’t pose a worry given a strong fundamental of the Indian market,” Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.
Patni from Axis MF also concurs on this view. “...Some investors have become cautious, but there has not been any dramatic change in flows. The good thing is industry's gross sales is also happening through SIPs and such investors have much better holding power as prices eventually get averaged,” he added.
Overall, assets under management (AUMs) of equity schemes, including assets under ELSS, stood at Rs 7.5 lakh crore, down 5 percent from their peak of Rs 7.86 lakh crore in January. Meanwhile, the overall industry assets under management stood at Rs 21.36 lakh crore, the March data showed.
In the last one year, the domestic mutual fund industry added 32 lakh new investors in FY18 (Apr-Mar).
What should you do?
While the market may not look attractive right now, experts dismiss the notion behind redemptions and recommend sticking to their investing strategies as well.
“At this point, an investor must not consider LTCG tax as an obstacle. People should not take this into consideration. Among asset classes, this is still the least taxed one. So, one can continue with their systematic investment plans (SIPs). For lump sum investors, one must think of using a systematic transfer plan,” Ashar of Full Circle Financial Planners and Advisors said.
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