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Inflows into equity mutual fund (MF) schemes continued to decline for the third consecutive month, though monthly contributions through systematic investment plans (SIPs) have increased, showed data released by the Association of Mutual Funds in India (Amfi) on Wednesday.

Equity MFs received 5,079.16 crore in October, a 21% fall from September, the lowest net inflow in the past three months.

Steep valuations of Indian markets are the primary reason for low net inflows, according to analysts.

The quantum of net inflows dropped from September and this could be a result of investors booking profits with markets trading near all-time highs, according to Himanshu Srivastava, associate director, manager research, Morningstar India.

Also, many investors would have chosen to stay on the sidelines given higher valuations, he said.

“The resumption of business activities and pick-up in the vaccination drive has improved growth outlook, helping markets touch all-time highs on expectation of economic recovery, thereby sidelining the risk of a possible third wave of the pandemic and other concerns in the interim. NFOs (new fund offers) also continued to garner strong interest from investors. Passively managed funds continue to attract investor interest on the back of a sharp rally in the equity indices," he said.

All equity categories, other than dividend yield and ELSS (equity-linked savings scheme), received net inflows in October.

In the hybrid category, except for arbitrage and hybrid aggressive/balanced, the rest including majorly balanced advantage/dynamic asset allocation schemes reported inflows.

“Higher net inflows in the hybrid and balanced advantage category to the tune of 10,400 crore signify retail investors taking a cautious view at current market levels and being prudent by taking a balanced view while investing in equities," said Akhil Chaturvedi, chief business officer, Motilal Oswal Asset Management Company.

“This strategy is a good way to use proprietary valuation models of various mutual funds and have adequate exposure to equities to not miss out from any upside, while at the same time having enough cash to deploy in the event of any meaningful corrections," he said.

Monthly SIP contributions were at 10,518.53 crore in October compared to 10,351.33 crore in the previous month.

After gaining 3% in September, benchmark indices Sensex and Nifty were almost flat in October because of sharp corrections towards the end of the month.

Domestic institutional investors (DIIs), which include mutual funds, insurance companies, pension funds and banks, were net sellers of shares worth 5,986.21 crore in October.

“It is heartening to see investors sticking to making mature choices by opting for schemes that offer a prudent mix of debt and equity through balanced advantage schemes, flexi-cap schemes, and choosing mutual funds as an investment for long-term financial planning for their own retirement and children’s welfare," said N.S. Venkatesh, chief executive, Amfi.

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