Equity MF inflows muted, but SIP inflows hit an all-time high in April

Assets under management (AUM) of the mutual fund industry stood at Rs 24.8 lakh crore at April-end, up four percent month-on month (MoM) , data from Association of Mutual Funds in India (AMFI) showed.

Equity systematic investment plans (SIPs) stood out in the crowd, racing to an all-time high.

MFs saw a total investment of Rs 1,00,460 crore in April, mainly driven by large inflows into liquid and money market funds, while flows into equity funds moderated. Exchange-traded funds (ETFs) saw capital outflows though.

Liquid and money market funds saw inflows of Rs 96,000 in April after an outflow of Rs 51,343 crore in March. This was on expected lines. Corporates, which are active investors in liquid funds, tend to redeem their investments to meet advance tax payment deadline in March and return in the new financial year.

Inflows into equity funds, including equity-linked saving scheme (ELSS), fell to Rs 4,229 crore in April from Rs 11,756 crore in March. Open-ended equity schemes saw inflows of Rs 4,608 crore, which were slightly offset by outflows of Rs 379 crore in close-ended equity plans. Moderation was well anticipated as March being the last month of the financial year saw large flows into tax-saving schemes.

The spike in equity funds in March came on the back of improved risk appetite on expectations of a stable political mandate in national elections, as opposed to the possibility of a fractured verdict.

However, as we get closer to the poll outcome on May 23, investors are developing cold feet and staying on the sidelines, as is evident in subdued equity flows in April.

While overall equity flows have been erratic, investment in equity funds through SIPs came as a silver lining, with a tally of Rs 8,238 crore in April, an all-time high.

The rising clout of SIPs has been a standout feature and is key to the success story of the MF industry as the flows are stickier and improve the persistency of equity assets under management (AUMs). If the current monthly SIP run-rate at Rs 8,000 crore is maintained, the MF industry is expected to see equity inflows of nearly Rs 1,00,000 crore in FY20, which is sizeable by any standard.

What are the key takeaways from the equity flows? 

In the equity universe, largecap funds saw negligible inflows in April. This can be interpreted in two ways. First, most largecap funds have trailed the broader benchmark Nifty, which could be a key reason for investors’ disinterest.

Second, they expect mid- and smallcap stocks to rally next after huge returns in largecaps. This in part explains their preference for multi-cap funds in April.

Monthly equity inflows have come off significantly from the high of Rs 20,308 crore in November 2017. The underlying trend is very encouraging as SIP inflows are resilient and indicate buoyancy in retail flows. Thanks to strong equity MF inflows in FY19, equity market could endure the lacklustre participation of foreign portfolio investors (FPIs).

However, the resilience of domestic equity flows will be put to test as we get closer to the election verdict. The moot question is, will the strong domestic equity flows sustain if the market weakens in coming months?

While there is no clear answer to this, we are enthused by the fact that the current flows are still strong and holding up well. The granularity of the flows as reflected in the rising SIP figure and higher share of individual investors in MFs’ total AUM -- 53.5 percent as of February-end 2018 – only add to the cheer.

Market reforms introduced by SEBI such as reduction of total expense ratio (TER) and introduction of direct plans have attracted retail investors. Add to that various initiatives and campaigns by industry body AMFI, including ‘Mutual Funds Sahi Hai’.

The results are already showing. Retail investors, who typically withdraw their funds following a year of negative returns, are now a changed lot.

For more research articles, visit our Moneycontrol Research page