Net inflows into equity mutual funds hit record high in July, SIPs climb
Premium- Amfi data showed that net ₹20,742.77 crore was pumped into equity schemes in July, a 350% jump from ₹4,608.75 crore in June
MUMBAI : As stock markets continued to hit record high, defying elevated valuations, net inflows into equity mutual fund schemes galloped to record high in July, almost rising six times in a month. According to data released by Association of Mutual Funds in India (Amfi) on Monday, net ₹20,742.77 crore was pumped into equity schemes in July, a 350% jump from ₹4,608.75 crore in June.
“The trend of positive inflows into equity mutual funds has continued for the fifth consecutive month. A lot of investors who have accumulated higher savings in the last year due to lower spending, and were staying on the sidelines, are getting back. The decline of the second wave, strong recent returns from equities, and the stability of the markets despite the second wave have added to investor comfort and confidence," Arun Kumar, head of research, FundsIndia said.
New fund offers (NFOs) launched by mutual fund houses in the month also contributed to the high net inflow into overall equity schemes. For instance ICICI Prudential Flexicap Fund garnered ₹9,808 crore, touted to be highest ever. As a category, flexi-cap funds received a net inflow of ₹11,508.24 crore in July, showed Amfi Data.
According to Aashish P. Somaiyaa, chief executive officer, White Oak Capital, the robust inflow into equity mutual fund schemes can be attributed to NFOs as fund houses try to complete their range as per Securities and Exchange Board of India (Sebi) scheme categorization norms and some more through thematic launches. “Momentum continues in passive products albeit led mainly by overseas funds and funds of funds investing overseas," he said.
All categories of funds in growth and equity-oriented schemes received net inflows barring value/contra fund and equity linked savings scheme (ELSS) in July.
The contribution of monthly systematic investment plans (SIPs) increased to record ₹9,608.86 crore in July from ₹9,155.84 crore in previous month.
“While we have seen a steady increase in the SIP flows, a significant portion of the inflows are attributable to the NFOs that were launched over the past month. An improving investor sentiment, driven by a surge in the markets and a positive investor response towards NFOs have contributed to the inflows over this period," Kavitha Krishnan, senior analyst-manager research,Morningstar India said.
Overall, redemption from equity schemes declined to ₹17,831.65 crore in July from ₹18,974.82 crore in June.
Domestic institutional investors, including mutual funds, insurance companies and banks, had invested ₹18,393.92 crore into equities in July, highest since March 2020 when there was an outbreak of pandemic in India leading to national lockdown. Though benchmark indices Sensex and Nifty had hit record high in July, their monthly gain in July was muted (up 0.2% each).
N.S. Venkatesh, chief executive, Amfi said, “RBI's accommodative stance, healthier earnings growth, vaccination-driven steady containment of covid pandemic and global and domestic liquidity are driving the equity markets to historic highs. Taking cue, retail investors, too, are participating in the equity rally, largely through mutual fund SIPs, on a continued rising quantum at record levels."
At ₹14,924 crore, inflows into arbitrage funds also hit a multi-year high. This marked a steep increase from the ₹9,060 crore that came in June 2021.
"Arbitrage funds flows are a sign of risk management. Some people may have the apprehension that the market is due for correction and they don't want to get hurt," said Venkatesh.
Arbitrage funds buy stocks and sell their futures, delivering a return close to that of liquid funds and are not as volatile as equity funds. However, the size of inflows can pose a challenge for these funds in terms of generating returns. In 2020, some funds issued warnings on future returns of arbitrage funds on account of the size of the category. However, distributors are confident about the issue not cropping up in the current scenario.
"I don't think the size of arbitrage funds is a concern at present. When such issues arise, asset management companies reach out to distributors to slow down flows. This has not happened this year," said Viral Bhatt, a Mumbai-based mutual fund distributor.
At 105.4 million, mutual funds industry has added 5 million folios for the first time ever compared with 7.4 million folios in last 12-month period between April 2020 and March 2021
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