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According to AMFI data, there was a net outflow of  ₹1,921.8 crore in July, the highest ever since March 2014. (Photo: Ramesh Pathania/Mint)
According to AMFI data, there was a net outflow of 1,921.8 crore in July, the highest ever since March 2014. (Photo: Ramesh Pathania/Mint)

India equity mutual fund schemes see first outflow in over four years in July

  • In July, redemption pressure deepened while contribution from systematic investment plan continued to dwindle. Net redemptions in equity MF schemes rose to a four-month high of 16,622.01 crore in July

MUMBAI: India's equity mutual fund schemes saw a net outflow in July, a first in over four years, as investors redeemed holdings amid a rally in stock markets from the pandemic-induced lows hit in March.

According to data released by Association of Mutual Funds in India on Monday, there was a net outflow of 2,480.35 crore in July, the first sell-off since March 2016.

Inflows into equity schemes have been slowing down after the robust net of 11,722.74 crore seen in March. In June, net inflows were at 240.55 crore, the lowest in 51 months. In July last year, these funds had received 8,112.52 crore worth of net inflows.

Last month, redemption pressure deepened while contribution from systematic investment plan (SIP) continued to dwindle. Net redemptions in equity mutual fund schemes rose to a four-month high of 16,622.01 crore in July, up 22.9% from 13,520.03 crore in previous month and from 12,173.81 crore in the year-ago period. SIP inflow fell to 7,830.66 crore in July from 7,927.11 crore in June.

“Multi-cap fund category was the worst hit followed by mid-cap and value fund categories. This could largely be attributed to investors booking profits given the surge in equity markets, across segments, in recent times. With equity markets doing well and stable scenario in the fixed income markets, hybrid schemes too witnessed significant net outflows, viewing this scenario as a good exit opportunity," said Himanshu Srivastava, associate director and manager, Morningstar India.

Net inflows in open ended debt funds rose to 91,391.73 crore in July from 61,845.54 crore in the same period last year. They were also substantially higher than the 2,861.68 crore that entered in June. However, June typically witnesses redemptions from banks and corporates on account of quarter ending and advance tax payments.

Within debt funds, flows were robust in categories like low-duration and corporate-bond funds.

"July debt fund flows will be a little distorted by the large investment of a particular corporate group. However the slight shift from liquid to categories like low duration are also a result of the very low yields at the very short end," said Rajeev Radhakrishnan, head, fixed income, SBI Mutual Fund.

"The inflows into gilt funds are also remarkable, although we should note that they have happened after a huge rally in this category. This warrants some caution," he added.

Gilt (government bond) funds have benefited strongly from the interest rate cuts over the past year. Net inflows into them hit 3,395.58 crore in July, almost triple the 1,159 crores that moved into them last month.

Arbitrage funds saw an outflow of 3,732 crore after several months of huge inflows. Experts observed that the category had grown too large for its size.

"The outflows in arbitrage funds are on account of the low returns they have delivered over the past 6 months. The size of the category had compressed spreads and hence as the size falls, the spreads will come back up. It is a self correcting mechanism," said Vijai Mantri, co founder and chief investment strategist, JRL Money.

International funds also saw doubling of flows from June to 400 crore, a level not seen since June 2008. A strong rally in US stocks pushed up returns on these funds. "People are realising the importance of global diversification," said Pratik Oswal, head, passive funds, Motilal Oswal Asset Management.

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