Investors rush to exit risk funds

Investors in credit risk funds ran for exits, redeeming units worth ₹19,238.98 crore in April, after six of Franklin Templeton India’s funds in the category collapsed.

In comparison, investors sold only ₹6,279.23 crore worth of units in March, a month that typically sees the highest redemptions as companies sell investments in debt and liquid funds at the end of the financial year.

Still, investors poured into other debt mutual fund categories in April as interest rates are expected to decline further, driving up the industry’s overall assets under management.

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Debt funds, which saw an outflow of ₹1.94 trillion in March, received overall inflows of ₹43,431.55 crore, primarily into liquid schemes, corporate bond funds, banking and PSU funds, overnight funds and gilt funds in April, the Association of Mutual Funds in India (Amfi) said on Friday.

“In the prevailing scenario of low inflation, expected softer interest rate regime, the mutual fund industry would see heightened interest in fixed-income schemes,” N.S. Venkatesh, chief executive, Amfi, said in a statement.

Other debt fund categories that saw outflows, include medium duration funds ( ₹6,363.53 crore), short duration funds ( ₹2,309.05 crore), money market funds ( ₹1,210.35 crore), low duration funds ( ₹6,841.07 crore) and ultra-short duration funds ( ₹3,419.32 crore).

Debt fund redemptions slowed after the Reserve Bank of India announced a ₹50,000 crore credit support for mutual funds, said Venkatesh. “Stability in redemptions indicate that investors’ confidence is returning to these schemes,” he said.

Meanwhile, net inflows into equity mutual funds slowed sharply as the prolonged nationwide lockdown threatens to leave a deep impact on business and the economy. According to Amfi data, inflows into equity schemes, including equity-linked savings schemes (ELSS), hit a four-month low of ₹6,411.88 crore in April, down 47.3% from the previous month, but was still 28.5% higher than a year ago.

However, redemptions in equity schemes eased off in April to ₹8,104.46 crore, down 54.8% from March, while it is down 37.1% from the year-ago period.

Inflows from systematic investment plans fell marginally to ₹8,376.11 crore in April from ₹8,641.20 crore in the previous month. However, the total number of SIP accounts grew to 31.4 million at the end of last month from 31.2 million in end-March.

SIPs allow people to invest fixed amounts in mutual fund schemes at fixed intervals.

“It was expected to slow down. In March, while there were market corrections, we could see opportunistic buying by investors, but broadly, with a weaker outlook on economy and markets, investors are cautious and would invest with caution over a period of time,” said Akhil Chaturvedi, associate director and head of sales and distribution at Motilal Oswal Asset Management Co.

April, however, was a relief for the stock markets, with the benchmark indices rising more than 14%, the best monthly performance since September 2009. The sharp recovery came despite threats of a looming global recession and forecasts of lower economic growth. However, even after recovering over 20% from their March lows, the Sensex and Nifty are not out of the bear market zone.

Powered by select debt funds, the total assets under management of the mutual fund industry grew 7.5% to ₹23.93 trillion from ₹22.26 trillion a year ago.

According to D.P. Singh, executive director of SBI Mutual Fund, uncertainty about the economy and expectations of poor corporate performance in the rest of the year are major reasons for deceleration of equity flows.

“Due to the lockdown, there has been a sharp drop in valuations in the market, thereby bringing down the confidence of investors. Equities may see lower inflows till there is some clarity on the way ahead and functioning of the various sectors in the economy. In the current environment, investors will shy away from making fresh investments into equity until a clearer picture emerges,” he said.