Flows into equity mutual funds fall to a 6-month low in May

Flows into equity mutual funds in May halved from the previous month to ₹3,240 crore, the lowest in the last six months, as investors booked profits taking advantage of the rally in equities.

Investors, however, continued to pour money into schemes through the monthly systematic investment plans (SIPs) with collections soaring to an all-time high of ₹14,749 crore compared to ₹13,728 crore in April.

Due to a rise in markets and flows into debt schemes, assets under management (AUM) of the industry touched ₹42.94 lakh crore.

Within equity mutual funds, small and midcap funds received a large chunk of the flows, while large cap, focused and thematic funds saw exits.

“The mid- and small-cap indices have outperformed the Nifty 50 since the start of the year, leading to a recency effect amongst investors, thereby driving more flows in the space,” said Suresh Soni, CEO, Baroda BNP Paribas MF.

Small-cap schemes saw inflows of ₹3,283 crore, midcap schemes saw inflows of ₹1,196 crore and the large- and mid-cap category saw inflows of ₹1,133 crore. Investors, however, pulled money out of large-cap schemes worth ₹1,363 crore, flexi cap worth ₹368 crore, Focused funds worth ₹944 crore and ELSS schemes worth ₹504 crore. With many large-cap funds failing to beat benchmark, investors are increasingly selling exiting this product category and moving to passive funds that track the Nifty 50 or S&P BSE Sensex.
With the banking system flush with liquidity, corporates used the opportunity to park surplus money into liquid funds, which returned 7%, compared to bank deposits of shorter tenure that returned 3-5%. Corporates put money in liquid, ultra short term and money market funds, with these categories seeing inflows of ₹45,234 crore, ₹7,585 crore and ₹8,731 crore, respectively.The index funds category, which includes both passive equity and debt funds, saw inflows of ₹109 crore. After the rush in March to gain advantage of long-term capital gains tax benefit and indexation, there is no incentive for rich investors to lock into high-yield passive target maturity funds.

In the hybrid segment, investors allocated ₹6,639 crore to arbitrage funds, as spreads between cash and futures market continued to be attractive at close to 6.5-7%. Multi asset allocation funds which allocate to all three assets namely equity debt and gold saw inflows of ₹738 crore, while equity savings schemes saw inflows of ₹445 crore.

“Hybrid category saw net flows rise by 84% to ₹6,093 crore, mainly due to the change in tax regulations and higher-than-usual inflows into arbitrage funds,” says Gopal Kavalireddi, vice president – research at FYERS. Categories like arbitrage and equity savings are taxed as an equity product, making it lucrative from a taxation perspective as compared to pure debt.