Inflows Into Equity Mutual Funds Fall For Fourth Straight Month

Inflows into equity mutual funds, including equity-linked savings schemes, fell to their lowest in more than two years in February as investors hold back investments amid uncertainty ahead of the general election.

Equity inflows declined 16.8 percent over the previous month to Rs 5,122 crore during the month, according to data released by the Association of Mutual Funds in India. That’s a fourth straight monthly decline and the lowest level since January 2017.

“Election-related uncertainty could be one reason why people are holding back their investments,” Aashish Somaiyaa, chief executive officer at Motilal Oswal Asset Management Company, told BloombergQuint. The number of systematic investment plans being registered is obviously coming off, according to Somaiyaa. At the same time, the SIPs that have stopped or maturing is also going up, he said, adding that people who’ve stopped their SIPs or are not renewing them could also be withdrawing their corpus.

Somaiyaa said redemption is not alarming when looked at as a percentage of assets, but gross inflows have shrunk quite rapidly.

Nifty 50 fell for the third straight in February amid uncertainty in Indian markets ahead of the general election. India-Pakistan tensions after the terror attack in Pulwama added to that.

“Performance of mid-cap stocks in the recent past is another overhang,” said Swarup Mohanty, chief executive officer at Mirae Asset Global Investments (India). Equity-linked savings schemes will be the savoir in March and April, he said.

Liquid Funds Drive Total Outflows

Overall, the mutual fund industry witnessed a total outflow of Rs 20,083 crore compared with an inflow of Rs 65,439 crore in January.

The liquid or money-market category contributed the most to the total outflow into mutual funds. Money-market schemes are used by companies to park surplus cash for the short term. Investors withdrew Rs 24,509 crore from such schemes in February against an inflow of Rs 58,637 crore in January.

Income funds witnessed outflows after a pause of a month—investors withdrew Rs 4,214 crore in February. Such schemes are considered safer because they invest in high-dividend generating stocks, government securities, certificate of deposits, corporate bonds and money-market instruments.

Balanced fund flows turned negative for the second straight month with an outflow of Rs 1,077 crore compared with a withdrawal of Rs 952 crore in January.

“Balanced funds will continue to see outflows,” Mohanty said. Gross purchase growth will be negated by the outflow in the category, he said.

Total assets under management of mutual funds fell 1 percent month-on-month to Rs 23.16 lakh crore in February. Total equity assets remained largely flat at Rs 7.73 lakh crore.