Graphic: Mint
Graphic: Mint

So which liquid, money market funds did investors flee from in September?

Among the top five funds in terms of AUMs, the drop was more or less in line with previous quarters

When the Association of Mutual Funds in India (Amfi) reported net outflows of 2.1 trillion from liquid and money market funds in September, it gave credence to the view that the default by Infrastructure Leasing and Financial Services Ltd (IL&FS) had led to a wave of redemptions. Of course, as this column pointed out last week, that data was a bit skewed. Now that all mutual funds (MFs) have reported their scheme-wise assets under management (AUMs) for September, it’s easier to figure if there indeed were unusually high redemptions after the IL&FS default, and the subsequent scare about non-banking financial companies (NBFCs).

In the liquid and money market categories, AUMs fell by 1.25 trillion or by 20.5% compared to August. This is based on data collated by Value Research.

Not only is this far lower than the 35% drop in AUMs indicated by Amfi data, but it’s also comparable to the drop in AUMs in the quarters ended March 2018 and September 2017. In those two periods, AUMs in these categories had fallen by 27.7% and 15.9%, respectively. Industry experts point out that this is a quarterly phenomenon, where banks typically redeem liquid funds and deploy them elsewhere as part of their treasury management activity.

Of course, this doesn’t mean funds didn’t face any redemption pressure. As the chart alongside shows, AUMs at some fund houses fell dramatically last month. Apart from LIC MF and DHFL Pramerica MF, both of which reported a drop of more than 50% in AUMs in the liquid and money market category, similar drops were reported by Union MF, Principal MF and Baroda Pioneer MF.

In most cases, investors were spooked by their exposure to either IL&FS or debt issued by some weak NBFCs. In a couple of cases, net asset values were marked down owing to the IL&FS default, which also contributed to the drop in AUMs. Some other fairly large fund houses such as Tata MF also reported large outflows, with AUMs dropping by more than 40% compared to August.

Among the top five funds in terms of AUMs, the drop was more or less in line with previous quarters. Of course, the fund house that stands out clearly is HDFC MF, which reported a 12% increase in AUMs. One view is that it benefited from a flight to safety on the strength of its brand, and the fact that it didn’t have any exposure to troubled names such as IL&FS and Dewan Housing Finance Corp. Ltd, which had spooked investors. Similarly, Kotak Mahindra MF and SBI MF did fairly well, too.

According to an MF distributor who did not want to be named, it’s premature to jump to that conclusion, since the funds that flowed out of the other top fund houses would have returned in the first half of October. As such, it makes sense to wait and see where market shares settle at the end of this month.

But, having said that, initial signs suggest that the panic in September did lead to a flight to safety, and it benefited only a few MF companies.