Market surge prompts record net outflows from stock funds

Investors pulled money out of equity mutual funds (MFs) at a record pace in November even as stocks touched new highs, indicating that many of them fear the record nine-month-long rally may peter out.

Net outflow from equity MF schemes touched a record ₹13,004 crore in November, a sharp increase from an outflow of ₹3,991.01 crore in the previous month, according to data released by the Association of Mutual Funds in India (Amfi) on Tuesday.

Experts attributed the highest-ever outflow from stock funds to profit-booking by investors as markets surged more than 70% from the lows in March. Equity funds have been seeing continuous outflows since July.

“There could be further profit booking as stock markets continue to surge ahead,” N.S. Venkatesh, chief executive of Amfi, told reporters in a conference call.

All categories of equity schemes saw outflows in November, Amfi data showed. The outflow in multi-cap funds was ₹2,842.08 crore; large-cap funds saw the highest outflow of ₹3,289.18 crore; it was ₹615.16 crore in large and midcap funds; ₹1,317.15 crore in mid-cap funds and ₹1,031.23 crore in small-cap funds.

“The outflows we have recently seen in equity funds are mainly driven by profit-booking on part of investors. This year, markets have been extraordinarily volatile with equity markets seeing multi-year lows at the beginning of the year. Now at the end of the year, they are at record highs. So, investors simply want to make the most of the opportunity,” said D.P. Singh, chief business officer, SBI Mutual Fund.

During November, contributions towards monthly systematic investment plan (SIP) declined marginally to ₹7,302 crore from ₹7,800 crore in October. Amfi’s Venkatesh said low monthly SIP contributions are due to public holidays.

Domestic institutional investors have been consistently dumping shares, selling a record ₹48,319.17 crore in November.

According to Akhil Chaturvedi, associate director and head of sales, Motilal Oswal Asset Management Co., the outflows from equity schemes probably have moved to direct equities as investors have had some successes in the past few months investing directly.

“Some part of this liquidity could have also flown to real estate, with renewed interest among genuine buyers wanting to own homes at low interest rates, and a fall in taxes and prices. There are also investors who would be sitting on cash to deploy once again post any meaningful correction in the near future,” Chaturvedi said.

Debt funds overall saw net inflows of ₹44,984 crore, but there was a rotation within debt categories, continuing a trend that has been evident for several months. Overnight funds and liquid funds saw net redemptions of ₹15,548 crore and ₹8,415 crore, respectively.

According to Venkatesh, investors have rotated from liquid and overnight to categories such as low-duration, short-duration and corporate bond funds due to their slightly higher yields.

Low-duration funds, short-duration funds and corporate bond funds saw net inflows of ₹27,108 crore, ₹13,094 crore and ₹11,093 crore, respectively.

Gold exchange traded funds (ETFs) saw their first net outflow since March of ₹141 crore.

“The return of risk appetite may have prompted some shift towards equities from gold. Also, some people would have bought ETFs and gold savings funds to lock in the price when physical stores were closed. Now, with the marriage season returning, such investors would be shifting back to physical gold,” said Chirag Mehta, senior fund manager, Quantum Asset Management.