Equity mutual fund inflows dip 96% in June triggered by profit booking, absence of fresh flows

The absence of fresh flows through SIPs and stoppage of existing SIPs due to job loss or pay cut following the nation-wide lock-down also contributed to the 96% decline in equity flow for June over the preceding month.

In a rising market, net flows into equity mutual funds (MFs) fell by 96% to a little over Rs 240 crore in June over those of the preceding month, as per the latest AMFI data. Industry experts say equity inflows have slowed down as a large number of investors are waiting for clarity on their own future cash flows before investing further. Some of them are also waiting for the market to go down to resume investment.

“Surge in benchmark indices led to improved NAV that triggered profit-booking by investors and in turn redemption. Moreover, the absence of fresh flows through SIPs and stoppage of existing SIPs due to job loss or pay cut following the nation-wide lock-down also contributed to the 96% decline in equity flow for June over the preceding month,” said Sayalee Khandke, Manager Research, Investica.

He, however, believes that this fall in equity inflow is a short-term trend and will reverse itself over the next quarter. Additionally, in debt funds, the change in investors’ behavior is clearly visible as the inflows in categories like Low Duration, Short Term, Corporate Bond have increased significantly over last month. “This indicates that investors are giving preference to safety over anything and this is a welcome change. Investors are better off in these categories as there is minimal exposure to credit or interest risk,” he said.

Sachin Shah, Fund Manager, Emkay Investment Managers Ltd, said, “There has been an overall slowdown in the equity inflows, but the gross inflows for the month were at Rs 13,000cr+ whereas the jump in redemptions to also nearly Rs 13,000cr+, which making the Net Inflow data look neutral. At least till last month SIP number was steady at Rs 8,000cr+ and I believe it would remain steady around that number, simply because it’s very granular at nearly 3.2 cr SIP accounts, so discontinuing of a few thousand SIPs will also not reduce the overall SIP inflow significantly.”

The markets have bounced back by nearly 30%+ in the last three months. From here on, the markets may trade in a narrow trading zone of +/- 5% for a quarter or so and then probably take the next direction after seeing the pick-up in the economy during the festivals season. “In the post-COVID business environment, some of the businesses that are relatively better-off are Telecom, Pharma, IT Services and Insurance businesses. In the last few weeks, we have observed significant higher activity in the markets from the retail investors and at the same time activity in a lot of penny stocks has also gone up. It will be very prudent for retail investors to not get lured into short-term gains from speculative penny stocks,” said Shah.