Quick take | Inflows into equity MFs moderate further in December but SIP flows hit a new high

Assets under management (AUM) of the mutual fund industry stood at Rs 22.85 lakh crore as at the end December 2018, down five percent compared to the preceding month, as per data released by the Association of Mutual Funds in India (AMFI) on January 8. The monthly fall of Rs 1.17 lakh crore assets was on the back of moderation of flows into equity funds and a large outflow from liquid funds.

Inflows into equity funds (including equity linked saving schemes) declined 21 percent on a month-on-month (MoM) basis to Rs 6,660 crore in December. The decline can be attributed to fading equity outlook, high market volatility, weak global cues and to some extent seasonality (year-end and a holiday season). Some portion of equity inflows also seem to have been diverted to equity exchange traded funds (ETFs), which saw a spike in flows to Rs 10,878 core in December 2018 as compared Rs 1,634 crore in the preceding month.

While equity flows have been weakening, investment in equity funds through systematic investment plans (SIPs), which tends to be relatively sticky, continued to show an improving trend with Rs 8,233 crore of SIP funds mobilised in December last year. This compares well with SIP flows of Rs 7,985 crore in November 2018 and is a very encouraging trend, indicating buoyancy of retail flows. However, as we head closer to national elections, the resilience of retail investors will be put to the test.

Equity flows to mutual funds held up well at Rs 1,27,137 crore well in 2018, supporting equity markets in a year in which foreign institutional investors (FII) have been net sellers of Indian equities. Going forward, domestic equity flows will remain a key number to watch out for as FIIs will remain on the sidelines in an election year.

Liquid or money market funds saw outflows of Rs 1.49 lakh crore in December 2018. Fund houses generally witness redemptions in December as corporates who are active investors in liquid funds tend to redeem their liquid investments to meet advance tax payment deadlines. Hence, outflows in liquid funds in December 2018 was due to seasonality and by no means suggested any precarious liquidity situation.

In October and November 2018, liquid funds had witnessed large inflows almost recuperating from outflows of Rs 2.11 lakh crore seen in September. While there was a seasonality impact, the pullout from liquid funds in September last year was accentuated by default of IL&FS group companies. The rating downgrade forced mutual funds with exposure to IL&FS group companies to mark down their net asset value (NAV), which increased risk aversion of investors and led to huge redemptions of liquid fund units.

The Reserve Bank’s actions supported overall liquidity in December. In a bid to improve liquidity, RBI scaled up the amount of government securities purchased under open market operations (OMOs) in December to Rs 50,000 crore from Rs 40,000 crore announced earlier.

Follow @nehadave01