Redemption intensifies, August equity MF outflow highest in a decade

As investors continued to flush out money from mutual funds, inflows into equity schemes remained under pressure in August even as markets rally sustained. According to data released by Association of Mutual Funds in India (AMFI) on Wednesday, net outflow from equity mutual fund schemes crashed to a 10-year low at ₹4,028.83 crore in August compared to a net outflow of ₹3,845.41 crore in previous month. This is highest net outflow for equity schemes since September 2010 ( ₹7281 crore).

During the month, redemption in equity schemes also increased to ₹18,557.82 crore from ₹16,622.01 crore in July. Contribution from systematic investment plans (SIP) continued to decline. SIP inflow in August was at ₹7791.63 crore, lower from ₹7,830.66 crore in previous month.

In the equity segment, all categories of fund saw a net outflow with large cap fund getting most hit. In August, large cap fund saw a net outflow of ₹1,553.50 crore, multi cap fund ₹1,157.21 crore, mid cap fund ₹602.98 crore, and small cap fund ₹104.39 crore.

According to analysts the continuous outflow trend indicates that more investors chose to booking profit given the surge in equity markets across segments. However, equities are losing domestic institutional support as domestic institutional investors (DIIs) sold ₹11,727.66 crore in the August (their highest sell-off since March 2019) while benchmark indices clocked in nearly 3% gains.

“Over the last two or three months, investors have continued to book profits from equity mutual funds. At the same time, it is encouraging to see that about 4.65 lakhs of new folios were added in August indicating sustained retail interest in mutual funds. While the SIP amount has dropped very nominally, once again there is a net addition of about 3.43 lakh SIP folios. It also appears that some investors have taken a tactical asset allocation call by moving from equity to low duration or ultra short term funds with the objective of re-entering equity funds at lower levels in the event of a correction in the markets,” G Pradeepkumar CEO, Union AMC said.

Most schemes in debt category of funds also saw outflow in August. Net outflow in overnight fund and liquid fund was at ₹10,298.03 crore and ₹15,814.01 crore respectively.There was a net outflow of ₹554.14 crore in credit risk funds.

"On the debt side, there are two points to note. There are negative flows in overnight and liquid funds but large positive flows in categories like money market indicating that people are moving into slightly longer duration categories to capture higher yields," said Kaustubh Belapurkar, Director, Fund Research at Morningstar Advisor India.

The introduction of a stamp duty of 0.005% on mutual fund purchases has also made investment in mutual funds for very short periods relatively less attractive. The duty has a larger impact relative to returns over periods of 30 days or less. "Also ,there was possibly opportunistic money going into gilt funds over the past few months in anticipation of further rate cuts. However a spike in inflation and a lower chance of these cuts happening and most likely lead to outflows there," Belapurkar added.

Gilt funds saw a net outflow of ₹1,122 crore. Gold ETFs however saw an inflow of ₹908 crore, similar to ₹921 crore seen in July. Belapurkar attributed this to increased awareness among investors about asset allocation.