The mutual fund industry witnessed a big upturn in investor preference for schemes with inflows into equity-linked MFs falling sharply from Rs 22,583 crore in July 2021 to around Rs 8,677 crore in August, the latest monthly data released by the Association of Mutual Funds of India (AMFI) showed.
The sharp decline could be attributable to launch of a number of large equity-oriented schemes (new fund offers) in July as compared to August, IANS said.
But the fall has been much starker for debt-oriented funds and schemes where net inflows in August reduced to a mere Rs 1,074 crore in comparison to Rs 73,694 crore inflows seen in July. This is largely on account of increased influx in liquid and market funds where money keeps moving in and out at frequent intervals.
The inflows into index funds including Gold ETFs, however saw a marginal increase in August to Rs 11,592 crore, higher from previous month's inflows of around Rs 10,000 crore.
"Overall positive flows in the open-ended MF schemes and market indices touching all-time high, helped the Indian MF Industry Net AUMs (asset under management) to breach record Rs 36 lakh crore milestone in August 2021.
"Retail AUM at Rs 17.15 lakh crore, almost half of total industry AUMs, SIP AUMs at record high Rs 5.26 lakh crore, which now forms a third of Retail AUM, healthy rise in SIP accounts at record Rs 4.32 crore and monthly SIP contribution at an all-time high at Rs 9,923.15 crore is reflective of established and rising retail preference towards mutual funds as a long-term wealth creation avenue," said AMFI Chief Executive N.S. Venkatesh.
"Continued robust month on month fund mobilisation in arbitrage and dynamic asset allocation schemes and affinity towards thematic/sectoral and diversified Flexicap schemes since the start of the new fiscal, FY22, including through SIPs has over-shadowed profit-booking during the last few months," he added.
Kotak Mahindra Asset Management Company Chief Investment Officer, Debt and Head, Products Lakshmi Iyer said : "August month saw continued flows in floating rate category in fixed income with net sales of nearly Rs 10,000 crore. Anticipation of tighter liquidity conditions due to the RBI announcement of additional VRRR could have prompted this move. Categories like medium to long term, gilt etc also saw positive net sales as the steep yield curve offers cushion to any potential abrupt rise in rates."
In August while large cap, small cap funds, and Mukti cap funds saw large outflows, inflows increased in index funds with investors look for passive investing in the market rather than adopting a more direct approach.
Industry reacts
Akshat Garg, Manager, Research, Investica
As we are riding the bull for the last 17 months with the acceleration fueled by the liquidity injected from the foreign portfolio investors, August month’s AUM figure provided by the AMFI is echoing the mounting fear of the expensive valuation of equities as net flows just amounting to 8,666 crore compared with 22,584 crore in the month of July with the economy still in the recovery phase and clouded with the uncertainty attached with the third wave of the pandemic.
No doubt Flexi-caps being favourite as the leverage available to fund managers to move money across the capitalization, as its being the equity category with the highest inflow with two more funds launched this month. Being unsure about the future trajectory of market direction, investors are observed to seek a passive call by diverting their corpus to balanced advantage funds and leaving it up to the fund managers to take the bet."
Gautam Kalia, Head – Investment Solutions, Sharekhan by BNP Paribas
With the market reaching new highs every day, investors seem to have started booking profits resulting in lower equity inflows in Aug 2021 as compared to July 2021. Investors still seem to be optimistic about the markets as the category has been witnessing steady and positive inflows since March 2021. Value/Contra and ELSS funds continue to witness net outflows even this month.
Focused and Flexi Cap funds were the preferred investment choice this month with maximum inflows in these categories. The rally in the markets has attracted many conservative investors to also enter the market, which is the reason for the consistent growth in the hybrid funds category since the beginning of the year. Dynamic asset allocation funds witnessed the maximum inflow this month with almost six times increase in the inflow as compared to that of the previous month.
After having witnessed, good inflows in the previous month, corporates seem to be losing faith in debt funds as inflows of only Rs 1,074 crore were recorded this month. Liquid and overnight funds that were the major drivers of the debt category witnessed outflows, which can be attributed to the lower returns in these categories or the shift of long term corporate money to arbitrage funds. Offshore funds continue to remain a preferred investment option for the retail investors as the category has witnessed consistent positive inflows since the beginning of the year.”
Mohit Nigam, Head - PMS, Hem Securities
As per data posted by AMFI today, the Mutual Fund industry witnessed net equity inflows for the sixth straight month in August 2021. However, this month's net equity inflow is 62% down on a month on month basis at Rs 8,666.68 crores. On an overall basis, net inflows stood at Rs 32,976 crores, down by 71 percent on a month on month basis, mainly due to lesser contribution from liquid funds on a comparative basis. Contributions from SIP also increased in August, recording Rs 9,923 crores as compared to Rs 9,609 crores in July 2021.
Mutual fund AUM as on 31st August 2021 was Rs 36.6 trillion, higher by 3.6 percent from July's AUM. Consistent equity inflows indicate positive sentiment among investors as the economy gains momentum, efficient vaccination drives throughout the nation, rebound in foreign funds and the government's supportive stance aiming at speedy economic recovery. However, decline on a month on month basis could be attributed to profit booking, specifically in some mid and small caps. Overall, data looks positive showing higher investor participation and AMC stocks reacted positively after AMFI's data was released in the afternoon."
Aashish Somaiyaa, Chief Executive Officer - White Oak Capital
A granular look at the data of equity and balanced / balanced advantage category of schemes suggests that the gross flow, the redemption and the net flow for the months of July and August remains to be at the same elevated level. But there is a significant shrinkage in the net flow for equity category and corresponding bump up in net inflow of the balanced advantage category. This leads one to believe that on aggregate industry level large balanced advantage NFO has garnered a lot of traction by way of switches from equity to balanced advantage category. From a retail investors’ perspective in the short term it may not be a bad development given elevated market levels and generally lower risk perception of balanced advantage funds.”
Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company
August month saw continued flows in floating rate category in fixed income with net sales of nearly Rs. 10,000 crore. Anticipation of tighter liquidity conditions due to RBI announcement of additional VRRR could have prompted this move. Categories like medium to long term, gilt etc. also saw positive net sales as the steep yield curve offers cushion to any potential abrupt rise in rates.
Arun Kumar, Head of Research, FundsIndia
The trend of strong inflows into equity mutual funds has continued for the sixth consecutive month. Many investors who were staying on the sidelines are slowly getting back. This trend is also getting reflected in the record NFO collections. The decline of the second wave, increase in vaccinations, sharp equity rally in the recent past, and the stability of the markets despite the second wave have added to investor comfort and confidence.
Umang Thaker, Head of Products, Motilal Oswal AMC
August has been an eventful month for the equity markets where nifty scaled newer milestone of 17,000 with the last 1000 points added in just 19 trading days. The frontline index outperformed PIC - Umang ThakerMidCap/SmallCap index for the first time in FY21. Broad based gains were seen in all nifty constituents with IT and consumer sectors leading. FII net flow reversed to positive 1 Bn compared to 1.7Bn outflow in July '21.
In terms of net mutual fund flows in Equity category the Flexicap category led the pack followed by Focused, Sectoral/Thematic and Large and MidCap in that order. The balanced advantage category saw the highest increase on the back of a large NFO. The GDP growth print and increasing pace of vaccination were the other encouraging news in August. Nominal GDP grew 31.7 percent YoY in 1QFY22, against contraction of 22.3 percent YoY in 1QFY21 and the pace of vaccination increased to 8.4m doses per day in the last seven days of August. 1QFY22 earnings were broadly in line with street expectations, prompting consensus estimates holding on to their full year FY22 Nifty EPS projections. Big is certainly getting better - In-spite of a very severe second wave, large companies (ex – financial) were able to control costs while maintaining pricing power to increase their EBIDTA margins and profitability. EPS growth over the next two years will eventually determine whether markets should sustain these valuations going forward.
