Inflow in equity mutual funds hit 6-month low of ₹3,240 cr. in May on profit booking

Inflow in equity mutual funds plunged to ₹3,240 crore in May, making it the lowest level in five months, primarily due to profit booking by investors amid rising stock market.

While this was the 27th consecutive month that equity asset class garnered net positive flows, when compared with April, the quantum of flow has halved, data released by the Association of Mutual Funds in India (Amfi) showed on Friday.

However, SIP (systematic investment plan) inflows are back above the ₹14,000 crore-mark and reached to an all-time high of ₹14,749 crore last month, after a brief dip to ₹13,728 crore in April, with investors continuing their disciplined investing that started more than two years ago.

Overall, the 42-player mutual fund industry continues to see inflow and attracted ₹57,420 crore, on contributions from debt-oriented schemes. This comes following a net investment of ₹1.21 lakh crore in the preceding month.

The inflow led to the asset under management of the industry accelerating to ₹43.2 lakh crore as of May-end from ₹41.62 lakh crore at the end of April.

Amfi CEO N Venkatesh said that the industry had seen an uptick even in the midst of volatile markets.

Going by the data, equity mutual funds attracted ₹3,240 crore in May, much lower than ₹6,480 crore inflow seen in April and ₹20,534 crore in March.

Inflow in May was lowest since November 2022, when equity mutual funds witnessed an infusion of ₹2,258 crore. “Profit booking in rising market along with probable expenses towards vacation, education could have led to lower investments in mutual funds in May,” Manish Mehta, National Head and Sales, Marketing and Digital Business at Kotak Mahindra Asset Management Company, said.

Melvyn Santarita, Analyst – Manager Research at Morningstar India, said that a combination of some profit booking coupled with concerns regarding the U.S. Government’s decision to raise the debt ceiling could have led to investors withdrawing money from equities during the month under review.

Within equities, the highest outflows were seen in the large-cap category (₹1,362 crore), followed by the focused category (₹944 crore) and ELSS category (₹504 crore). However, investors continued to repose faith in small-cap funds with a 50% jump in net flows to ₹3,282 crore.

The valuation difference in comparison to large-cap stocks continues to play out well for investors opting for mid- and small-cap funds since the beginning of the calendar year, Gopal Kavalireddi, Vice President – Research at FYERS, said.

Debt funds saw a net infusion of nearly ₹46,000 crore, which was more than halved from ₹1.06 lakh crore inflow seen in April.

In the debt segment, inflows were driven by liquid funds, ultra-short duration, money market and short-duration categories.

“With expectation that the interest rate hike cycle is at its fag end and the rate cut would be gradual and after a pause, investors continue to gravitate towards categories with short to medium duration profile such as – Ultrashort, Low duration, Money Market, Short duration and Medium duration. Institutional money continued to flow into the Liquid Fund category,” Morningstar India’s Santarita said.

However, the category which witnessed the highest net outflow was Overnight Fund category and given the uncertainty over the timing of the rate cuts, investors preferred to stay away from categories exposed to higher interest rate risks, he added.

Only the hybrid category saw net flows rising by 84% to ₹6,093 crore, primarily due to the change in tax regulations and higher than usual inflows into arbitrage funds.