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MF equity lump sum flows may have slowed down in recent past, says report

A steep correction in equity markets and increased working capital needs for small businesses given the rise in commodity prices has led to a slowdown in MF inflows. (Photo: iStock)Premium
A steep correction in equity markets and increased working capital needs for small businesses given the rise in commodity prices has led to a slowdown in MF inflows. (Photo: iStock)

  • Systematic investment plan flows, meanwhile, have remained healthy as the strategy of distributors and independent financial advisors have been to focus more on SIPs rather than lump sum investments given market volatility

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NEW DELHI: There has been a slowdown in business for large mutual fund distributors in the recent past, with inflows into equity products having weakened, according to a report by Motilal Oswal Financial Services Ltd. (MOFSL).

The key factors behind this slowdown include a steep correction in equity markets and increased working capital needs for small businesses given the rise in commodity prices, the report said.

Systematic investment plan (SIP) flows, meanwhile, have remained healthy as the strategy of distributors and independent financial advisors have been to focus more on SIPs rather than lump sum investments given market volatility.

The findings of the report are based on discussion of analysts at MOFSL with a few large mutual fund distributors--having assets under management (AUM) in excess of 1,000 crore--and institutional sales representatives.

As per the report, no major trends have emerged yet with respect to redemptions. However, as observed in the past cycles, redemptions gather momentum when there is a sharp bounce back in equity markets.

Further, the number of SIP closures have increased in recent past as customers sourced by the fintech companies had enrolled for SIPs of much shorter duration - six months to one year).

“Additionally, most of the customers were young students and hence to sustain investments every month is a challenge for them," the report said.

The report also highlighted that among high net worth individuals (HNIs), there has been a definite slowdown in terms of inflows into equity funds. The report also noted that HNIs have been preferring longer duration debt funds increasingly, given that the interest rates have been raised by the RBI.

With respect to passives, while retail segment continued to avoid the space, HNIs are increasingly investing in index funds.

Their preference for index funds is based on ETFs that are primarily do-it-yourself as no distributors pitch the same liquidity for ETFs, which is high only for select funds while index funds can be redeemed at fund houses with ease, transaction costs for ETFs, including STT and other charges, reduce the cost gap between the two.

According to the report, HNIs also prefer to invest in alternative assets, such as alternative investment funds (AIFs) and portfolio management service (PMS) products, due to their relatively better returns delivered in the past couple of years. This is despite the high cost the HNIs have to bear when compared with mutual funds.

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