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MUMBAI : Net inflows into equity mutual fund schemes surged to a record high in July, as stock markets defied elevated valuations to reach higher levels during the month. According to data released by the Association of Mutual Funds in India (Amfi) on Monday, equity schemes received a net 20,742.77 crore in July, a 350% jump from 4,608.75 crore in June.

“The trend of positive inflows into equity mutual funds has continued for the fifth consecutive month. A lot of investors who have accumulated higher savings in the last year due to lower spending and were staying on the sidelines are getting back. The decline of the second wave, strong recent returns from equities, and the stability of the markets despite the second wave have added to investor comfort and confidence," said Arun Kumar, head of research at FundsIndia.

Massive Jump
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Massive Jump


New fund offers (NFOs) launched by mutual fund houses during the month also contributed to the high net inflows into overall equity schemes. For instance, ICICI Prudential Flexicap Fund garnered 9,808 crore, touted to be the highest ever inflows in such funds. As a category, flexi-cap funds saw a net inflow of 11,508.24 crore in July, showed Amfi data.

According to Aashish P. Somaiyaa, chief executive officer, White Oak Capital, the robust inflow into equity schemes can be attributed to NFOs as fund houses try to complete their range as per Securities and Exchange Board of India scheme categorization norms and some more through thematic launches. “Momentum continues in passive products, albeit led mainly by overseas funds and funds of funds investing overseas," he said.

All categories of funds in growth and equity-oriented schemes received net inflows in July, except value/contra funds and equity-linked savings schemes (ELSS).

The contribution of monthly systematic investment plans (SIP) hit a record 9,608.86 crore in July, up from 9,155.84 crore the previous month.

“While we have seen a steady increase in SIP flows, a significant portion of the inflows is attributable to NFOs that were launched over the past month. An improving investor sentiment, driven by a surge in the markets, and a positive investor response towards NFOs have contributed to the inflows over this period," said Kavitha Krishnan, senior analyst-manager research at Morningstar India.

Overall, redemptions from equity schemes declined to 17,831.65 crore in July from 18,974.82 crore in June.

Domestic institutional investors, which include mutual funds , insurance companies, and banks, among others, had invested 18,393.92 crore into equities in July, the highest since March 2020 when the coronavirus outbreak led to a nationwide lockdown in the country. Though benchmark indices Sensex and Nifty had hit a record high in July, their monthly gain during the month was just 0.2% each.

N.S. Venkatesh, CEO, Amfi, said, “The Reserve Bank of India’s accommodative stance, healthier earnings growth, vaccination-driven steady containment of covid pandemic, and global and domestic liquidity is driving equity markets to historic highs. Taking a cue, retail investors too are participating in the equity rally, largely through mutual fund SIPs, on a continued rising quantum at record levels."

At 14,924 crore, inflows into arbitrage funds also hit a multi-year high. This marked a steep increase from the 9,060 crore that came in June 2021. “Arbitrage funds flows are a sign of risk management. Some people may have the apprehension that the market is due for correction and they don’t want to get hurt," said Venkatesh.

Arbitrage funds buy stocks and sell their futures, delivering a return close to that of liquid funds and are not as volatile as equity funds. However, the size of inflows can pose a challenge for these funds in terms of generating returns. In 2020, some funds issued warnings on future returns of arbitrage funds on account of the size of the category. However, distributors are confident about the issue not cropping up in the current scenario.

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