Investments in equity MFs plunge by nearly half in July

BSE’s benchmark Sensex surged 9% in July as foreign portfolio investors turned net buyers of Indian stocks after nine months.

Risk-on sentiment returned to markets globally after some investors believed that the US Federal Reserve took a dovish tilt and China relaxed some stringent covid curbs.

“One of the reasons for the decrease in net inflow (equity) might be that money is temporarily shifting from equity to debt. Investors are taking a cautious approach," said Priya Agarwal, money coach at LXME, a financial platform for women.

Net inflows, including debt and equity segments, were positive at ₹28,098.89 crore in July, compared with net outflows of ₹69,853 crore in June. Debt-oriented funds witnessed a net inflow of ₹4,930 crore, compared with the previous month’s net outflow of ₹92,247 crore.

Within the equity segment, small-cap schemes witnessed a significant inflow of ₹1,779 crore, followed by flexi-cap and mid-cap segments.

Equity mutual funds recorded net inflows for the 17th straight month in July, but investments have been tapering for the past three months, showed data issued by the Association of Mutual Funds in India (Amfi) on Monday. In fact, July equity inflows have been lowest since October 2021.

The number of systematic investment plan (SIP) accounts stood at a record 56.1 million as of July end, while monthly SIP contribution remained robust at ₹12,140 crore.

Assets under management (AUM) linked to SIPs stood at a record ₹6.09 trillion as of July end, whereas new SIPs registered during July stood at 1.74 million.

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“July seems to be when investors have taken some profits off as markets went up. Momentum was coming down all through the last few months as the markets were correcting, but July was a steep fall, and excluding the SIP numbers, we might have witnessed actual net negative sales in July," said Akhil Chaturvedi, chief business officer, Motilal Oswal Asset Management Co.

The net AUM of the Indian mutual fund industry rose 7% to ₹37.74 trillion as of 31 July. Further, the number of mutual fund folios rose 29% yearly to an all-time high at 135.5 million from 105.4 million last year. The number of folios grew 1% from the preceding month.

In the fixed income or debt category, overnight fund, ultra-short duration fund and money market fund, long duration fund and gilt fund with 10-year constant duration witnessed positive flows.

Solution-oriented schemes such as retirement and children’s savings funds and index, fund of funds and exchange-traded funds (ETFs), too, witnessed positive flows during July.

Positive flows in almost all categories of mutual fund schemes, barring hybrid funds, stand in good stead as economic recovery would pace up in the next few quarters, said N.S. Venkatesh, chief executive of Amfi.

Meanwhile, gold exchange-traded funds witnessed net outflows of ₹456.75 crore in July against ₹184.83 crore inflows in June. “The outflows could be directed toward money being diverted from gold to other asset classes as a part of a portfolio rebalancing strategy," Agarwal said.

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