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Business News/ News / India/  Equity mutual fund inflows decline 16% on volatile  markets
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Equity mutual fund inflows decline 16% on volatile  markets

Inflation, geopolitical tensions and sell-off by foreign investors spooked investor sentiment

Inflation, geopolitical tensions and sell-off by foreign investors spooked investor sentimentPremium
Inflation, geopolitical tensions and sell-off by foreign investors spooked investor sentiment

NEW DELHI : Investments in open-ended equity mutual funds fell 16% on a sequential basis in June to 15,497.76 crore as rising inflation, geopolitical tensions sparked by the Ukraine conflict and sell-off by foreign investors spooked investor sentiment.

Indian investors, however, continued to repose their faith in stock markets with equity mutual funds recording positive net inflows for the 16th straight month in June, showed data issued by the Association of Mutual Funds in India (Amfi) on Friday.

Meanwhile, open-ended debt mutual funds saw net outflows of 92,247.63 crore last month as corporates redeemed their debt investments to make advance tax payments, while banks wanted to avoid capital charge enforced by the Reserve Bank of India. Debt funds had witnessed net outflows of 32,722.25 crore in May, while they witnessed inflows of 54,756.60 crore in April.

Monthly equity flows
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Monthly equity flows

Outflows in June were largely driven by overnight funds, liquid funds and ultrashort duration funds.

“An uncertain macro environment, driven by the expectations around an increasing rate cycle, higher commodity prices and slowdown in growth have likely led to investors steering clear of debt funds. Single digit returns, rising bond yields and the rising inflation have also likely led to investors choosing to redeem their investments in debt funds in favour of other investment avenues," said Kavitha Krishnan, senior analyst–manager research, Morningstar India.

Consequently, the mutual fund industry’s net assets under management (AUM) declined to 35.64 trillion in June from 36.98 trillion in the previous month.

Meanwhile, retail investors remained bullish on the future with the Amfi data showing contribution through monthly systematic investment plans (SIPs) of 12,275.79 crore. Furthermore, the number of SIP accounts touched a record high of 55.4 million in June, crossing the May high of 54.8 million.

“Strong momentum towards big megatrend of financialization of savings being observed across the country continues to remain intact, even on the backdrop of subdued macro-economic situation, both domestically and globally," said N. S. Venkatesh, chief executive of Amfi.

Within the equity segment, flexi-cap and large-cap funds recorded net inflows of 2,511 crore and 2,130 crore, respectively.

This indicates that, despite the volatility in the stock market, investors are investing their money into equity-oriented schemes with the aim to generate returns in the long run.

“It could also be a result of investors being more conscious of how important it is to have assets in their portfolios that can combat inflation," said Priti Rathi Gupta, founder, LXME, a financial platform for women.

In the hybrid category, dynamic asset allocation or balanced advantage funds, balanced hybrid and aggressive hybrid, and conservative hybrid witnessed positive flows.

“These trends reflect a sign of maturity in investors’ mindset. The SIP contribution remaining above 12,000 crore indicates better awareness among retail investors about long term orientation of equity investments and understanding of current volatility as a part and parcel of equity investing," said Akhil Chaturvedi, chief business officer, Motilal Oswal AMC.

Meanwhile, gold exchange-traded funds (ETFs) recorded a decline in net inflows in the month of June to 134 crore from 203 crore in May.

This could be because of the investors’ expectations of increasing interest rates leading to a decline in the gold prices.

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ABOUT THE AUTHOR
Abhinav Kaul
Abhinav Kaul writes on cryptocurrencies and mutual funds at Mint. His previous stints include ETMarkets, Reuters Bangalore and Press Trust of India.
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Published: 08 Jul 2022, 11:37 PM IST
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