Equity funds see 4th straight month of outflows; multicap funds suffer the most

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NEW DELHI: Equity mutual fund schemes saw a fourth straight month of outflows in October as investors continued to book profits instead of staying invested, as the market inched towards their record high level.

According to Amfi data released for the month of October, investors withdrew a net Rs 2,724.95 crore, more than previous month’s Rs 734.40 crore from equity-oriented funds, thanks to selloff in multicap, largecap and contra funds. Equity mutual funds saw a total inflow of Rs 17,514.02 crore and outflow of Rs 20,238.98 crore.

Barring sectoral and thematic funds, all schemes saw net outflows during the month. Multicap funds saw the biggest outflow at Rs 1,902.74 crore, while contra funds saw an outflow of 1,201.37 crore. Other fund categories saw outflows up to Rs 500 crore.

Outflows during the month forced domestic institutional investors, which mostly comprise mutual fund managers, to sell a net Rs 17,318.44 crore worth of stocks against an investment of Rs 110.3 crore crore in the previous month even as the FIIs poured in Rs 19,541 crore in the equity markets for the first time.

“The number of folios as well as funds mobilized during the month was higher than September, however, at the same time, the redemption amount too shot up. This indicates that while there are a new set of investors who are investing in the markets, existing investors continue to book profit given the surge in the equity markets across segments in the recent times,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

On the other hand, debt mutual fund schemes saw bumper inflows during the month as they cumulatively saw fresh net investments of Rs 1.1 lakh crore. Five categories–liquid fund, ultra short duration fund, money market funds, short duration funds and corporate bond funds–saw inflows worth over Rs 10,000 crore each. Long duration funds and credit risk funds were the only two categories that saw outflows.

Inflows in the debt funds have been coming as bond yields have been falling. Lower yields mean higher bond prices and in turn higher net asset value (NAV) of funds, resulting in increase in investor wealth.

During the month, yields on sovereign bonds were suppressed as the central bank came out with a number of TLTROs and OMOs. The yield on 10-year bonds fell 0.13 per cent during the month.

SIP inflow in October fell further to increase marginally to Rs 7,800 crore from Rs 7,788,37 crore in the previous month. Total number of SIP folios saw a marginal jump to 3.37 crore from 3.33 crore. The assets under management (AUM) from SIPs rose by Rs 6,446 crore to Rs 3.42 lakh crore.

“Rise in both SIP contribution and SIP AUMs during October 2020 and continued slowing outflow in equity schemes reinforces the retail investor confidence in mutual funds as an asset class,” said N Venkatesh, chief executive at Amfi.

It should be noted that much of the gains in the AUM could be due to mark-to-market gains in funds as the BSE Sensex gained over 4 per cent in October, while the BSE Midcap and BSE Smallcap managed to extend gains to the seventh straight month.

The total mutual fund AUM as on October 31 rose to highest ever at Rs 28.22 lakh crore, thanks to net inflows of Rs 98,575.96 crore and market-to-market gains.