Equity Mutual Fund Inflows Fall To Lowest In Two Years

Inflows into equity mutual funds, including equity-linked savings schemes, fell to their lowest in 24 months in January due to mixed domestic and global cues, weak investor sentiment and changes in mutual fund regulation.

Equity inflows declined 6.8 percent over the previous month to Rs 6,158 crore in January, according to data released by the Association of Mutual Funds in India. That’s a third straight monthly decline.

The drop in equity inflows was due to various factors. “Uncertainty ahead of the upcoming general election along with global factors such as U.S.-China trade war, movement in crude oil prices and fears of a global economic slowdown are weighing on equity inflows,” said NS Venkatesh, chief executive officer, AMFI.

Change with respect to the regulations governing mutual fund distribution have also played their part, Aashish Somaiyaa, chief executive officer, Motilal Oswal AMC said. “While only a part of it in the form of ban on upfront commission has taken place, the cut in total expense ratio will be coming into effect from April 1.”

Inflows into equity funds fell as the broader indices declined while a few heavyweight stocks supported the benchmark indices. While the S&P BSE Sensex gained 0.52 percent gain, NSE Nifty 50 declined 0.29 percent in January. By contrast, Nifty Midcap 100 tumbled 5.43 percent and Nifty Smallcap 100 declined 4.9 percent.

Overall, the mutual fund industry witnessed a total inflow of Rs 65,439 crore compared with a Rs 1.36 lakh-crore outflow in December. That was led by inflows into liquid funds, primarily used by companies to part short-term cash.

Investors pumped Rs 58,637 crore into the liquid or money-market category last month against an outflow of Rs 1.48 lakh crore in December.

Income funds posted positive inflows for the first time since April 2018. Flows into the income category rose to Rs 2,080 crore. Such schemes are considered safer because they invest in high-dividend generating stocks, government securities, certificate of deposits, corporate bonds and money-market instruments.

“With RBI easing the rates and a more dovish commentary from the U.S. Fed, we expect to see flows rise in the coming weeks.'' Venkatesh said.

Balanced funds witnessed the first outflow—worth at Rs 952 crore—since May 2014. Reasons for disappointment with balanced funds, according to Somaiyaa, maybe more specific to the category. “The inconsistency of dividends, and post the budget, the imposition of tax on such dividends along with their relative underperformance in the last one year.”

Total assets under management rose 2 percent month-on-month to Rs 23.37 lakh crore in January. Total equity assets, including equity linked schemes, fell 1.6 percent to Rs 7.73 lakh crore in January.