Equity inflows hit: Mutual funds see more pain in coming months

SIP account additions, too, have fallen, even though they remained in positive territory compared to number of SIPs discontinued.

By Urvashi Valecha

Domestic mutual funds are bracing for more pain as net equity inflows are likely to moderate further in coming months. June inflows were the lowest in four years as redemptions increased sharply, negating flows through monthly systematic investment plans (SIPs).

With markets having jumped a sharp 41% from their March lows, mutual fund investors have rushed to redeem their investments in equity mutual funds while new SIP account additions moderated.

According to analysts at Nomura Reserach, the pressure on equity flows and a moderating SIP book are a key monitorable. The SIP flows in June were largely negated by the outflows in lump-sum investments, which stood at around Rs 7,900 crore. SIP account additions, too, have fallen, even though they remained in positive territory compared to number of SIPs discontinued.

The net inflows for June in the equity funds stood at Rs 240.5 crore, which is the lowest since April 2016. The SIP inflows into equity funds in June have declined 8% from the peak of Rs 8,640 crore seen in March. Mutual funds expect the volatility in flows to continue in the coming months.

Investors are currently not just anxious due to the pressure on their investments,partly the result of the Covid-19 pandemic but also because the performance in the last two years has been disappointing. High net worth individuals are encashing their investments as the market has recovered from their lows. Kalpen Parekh, president, DSP Investment Managers, said, “In the last 2 to 3 years, the performance has been muted hence, investors are anxious. The month of June has seen low inflows into equity schemes. Data also points to the fact that July might see muted flows. Inflows in the next few years may be lower than what we have seen in the last two to three years,” Parekh said.

Mutual fund returns have suffered as a series of events have impacted mutual fund returns since the IL&FS fiasco in 2018. According to Sandeep Bhosle, assistant vice president, customer interaction, Quantum Mutual Fund, “It’s not just March, investors have been hurting for two years since the IL&FS deafult. The Covid-19 pandemic has just added more pressure. Worries about more lockdowns are haunting the salaried class and these have already hit the business class, especially the small businessmen. Investors are not sure whether to continue their SIPs or pay EMI or just reserve cash for the bad day.” Inflows may decline till more clarity on the situation arises. “It’s the retail investors who have been hit by salary cuts and small business class who are actually pulling out,” adds Bhosle.

June has been the worst month for equity MF inflows and going forward they will remain volatile till the country is fully opened-up. G Pradeepkumar, CEO, Union AMC, said, “June was the worst month for inflows and they will continue to be volatile going forward for the next two or three months but they will pick up towards the second half of the year as the economy starts recovering.”

Those redeeming their units are relatively large investors and there are multiple reasons for the large redemptions. After the run up in the markets in the last couple of months, high net worth individuals are looking to book profits. On the other hand, those who pausing or stopping their SIPs are the ones who have an immediate cash flow problem.