Equity flows see sharpest dip in 3.5 years, slip 78% in November

Flows were 78% low compared to Oct; lump sum investments hit

Equity mutual fund (MF) schemes recorded worst inflows in three and a half years at Rs 1,311 crore for November. It was 78 per cent low compared to the preceding month. Despite the drop in equity inflows, the assets under management (AUM) for the industry soared to a record high of Rs 27 trillion, thanks to over Rs 50,000 crore of net inflows in debt schemes. In November, equity schemes saw Rs 16,268 crore of redemption — 47 per cent higher than the previous month.

“Investors have been nervous and current conditions have not given much comfort. Some investors may have opted to take out money with the recent rally bringing in some relief,” said Swarup Mohanty, chief executive officer at Mirae Asset Management Company (AMC).

In November, equity schemes saw Rs 16,268 crore of redemption, 47 per cent higher than the previous month.

“Investors across the board have taken money off the table as markets have scaled new highs. Even in the current month, the redemptions have stayed on the higher side,” said the chief executive of a fund house, requesting anonymity.

In the past three months, the benchmark Sensex has gained more than 8 per cent, hitting an all-time high of 41,163 points on November 28.

In June 2016, equity flows had slipped to Rs 320 crore, posting a month-on-month decline of 93 per cent. This was also a period when markets had registered a strong recovery, gaining over 20 per cent in the past four months.

Contribution through systematic investment plans (SIPs) — that is, monthly commitment made by investors — grew marginally to Rs 8,272 crore in November. Industry experts said SIPs had stayed intact, which is a healthy sign for the MF industry.

“If we see markets correcting, we could again see a lump sum coming back. On the other hand, when markets are seeing some euphoria, redemptions are expected to be on the higher side,” said Kaustubh Belapurkar, director (fund research) at Morningstar Investment.

As against SIPs, lump sum money is tactically deployed by investors when they markets are trading at attractive level. On the debt front, inflows into liquid schemes declined to Rs 6,938 crore, which was 92 per cent lower than in the previous month.

Industry experts attribute it to tighter norms laid down by the Securities and Exchange Board of India (Sebi) for liquid schemes.

To curb daily inflow and outflow in liquid schemes from large-ticket institutional investors, Sebi had put in place a graded exit load structure. According to this, investors who take out their investments in liquid schemes in less than seven days will have to bear an exit load. There was a significant rise in flows coming into the overnight schemes. The category saw more than a three-fold jump in flows, rising to Rs 20,649 crore as of November 30.

“Institutional money looking for daily liquidity is now moving into this category, given the new norms placed on liquid schemes,” added Belapurkar.

Concerns around downgrades and defaults kept investor sentiments under check as credit risk funds saw another month of outflows. The category saw Rs 1,898 crore pulled back by investors in November. The MF industry’s AUMs stood at Rs 26.9 trillion in November, which was 3 per cent higher than the previous month. On an overall basis, the MF industry saw net inflow of Rs 54,419 crore last month as compared to Rs 1.33 trillion in October, thanks to encouraging flows into categories such as short-term debt funds, arbitrage funds, banking funds and certain ETFs.