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Net inflows into equity mutual funds slumped in April as widening business and mobility restrictions dampened sentiment and prompted investors to hold on to cash.

Data released by the Association of Mutual Funds in India (Amfi) on Tuesday showed net inflows fell 75% to 1,783 crore in April from 7,376 crore in March. Before March, the equity segment saw net outflows for eight straight months. In April last year, equity schemes received net inflows of 6,108.3 crore as the market crash following the abrupt nationwide lockdown made valuations attractive for investors.

Most equity fund categories received net inflows in April, except multi-cap funds, dividend yield funds, value/contra funds and ELSS funds. Categories that received significant flows were mid-cap, large and mid-cap and large-cap.

Covid effect
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Covid effect

According to Himanshu Srivastava, associate director, manager research, Morningstar India, while redemptions in April were almost the same as in March, funds mobilized were lower, suggesting some investors would have preferred to wait for clarity as a vicious second covid wave sweeps across the country.

“Additionally, a few investors would have also held back investments in anticipation of a market correction, given the ongoing concerns. Volatility and intermittent corrections on concerns over the intense second wave of the pandemic and its possible impact on the economy provided investors with a good investment opportunity or entry points during the month," he said.

Domestic institutional investors (DIIs) have been steadily buying shares in March and April, while foreign institutional investors dumped Indian equities. DIIs, which include mutual funds, insurance firms, banks, financial institutions and pension funds, were net buyers of equities worth 11,088.62 crore in April and 5,204.42 crore in March.

D.P. Singh, chief business officer, SBI Mutual Fund, said lockdown-like curbs in cities that contribute largely to mutual fund inflows hit fresh fund deployment in the retail segment. “In a situation where there are restrictions on mobility amid a health crisis, mutual fund investments are not a priority. The flow is likely to stay muted as long as the curbs are not lifted and the situation is not normalized. With distributors getting impacted and infected due to covid, there is less activity on the ground to drive MF investments," he said.

The contribution of monthly systematic investment plans (SIP) declined marginally to 8,590.89 crore in April from 9,182.42 crore in March. N.S. Venkatesh, chief executive, Amfi, said there was a spillover of SIP money into March due to public holidays in February.

The start to FY22 has been quite positive with mutual fund industry average assets under management (AUMs) climbing to an all-time high at 32.42 trillion owing to overall positive flows in all open-ended categories," Venkatesh said.

Debt-oriented categories received a healthy net inflow of 1 trillion in April, following a net outflow of 52,528 crore in March. Liquid funds received significant inflows, indicating businesses would have chosen to park excess short-term money in these funds at the beginning of the new fiscal, Morningstar’s Srivastava said.

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