Net outflow from equity MFs rose to a record in December

Investors bailed on equity mutual funds in December, choosing instead to pile into initial public offerings or invest directly in stocks as markets climbed to record highs. Some investors chose to park their money in debt funds.

Net outflow from equity mutual funds rose to a record ₹13,121 crore in December, topping the ₹13,004 crore net outflow in the previous month, according to data released by the Association of Mutual Funds in India (Amfi) on Friday.

These funds reported a net inflow of ₹4,432.20 crore in December 2019.

Equity mutual funds have seen continuous outflow in the past six months as investors chose to put their money in IPOs, which saw record investor participation, and also directly into stocks.

Total redemptions in equity schemes stood at ₹36,220.28 crore in December, the highest since March 2018. In November, these schemes witnessed redemptions worth ₹27,113.18 crore and ₹15,441.78 crore in December 2019.

Investors in mutual funds have been using the market rally as an opportunity to book profits, said Akhil Chaturvedi, associate director and head of sales at Motilal Oswal Asset Management Co.

He said that reallocation of large parts of these redemptions would be in direct equities where the experience of investors has been good in the recent past.

“There is a general belief that markets are expensive and overheated. Hence, a healthy correction should not be written off, and this could probably create fresh interest to make allocations back in equity mutual funds and reversal of negative sales trend for the industry,” he added.

Markets have been rallying on expectations of an earnings rebound.

Indian markets have gained more than 80% after the steep crash in March. The benchmark Sensex index gained 8% in December following an 11% rise in the previous month.

Himanshu Srivastava, associate director and manager research, Morningstar India, said that the continuation of net outflows from equity funds could be attributed to profit-booking or portfolio rebalancing as markets continued to touch new highs.

“In fact, the net outflow number would have been higher, had it not been for the NFOs (new fund offerings) across multiple equity categories, which collected ₹7,600 crore,” he said.

Outflows were witnessed across equity fund categories, except for Dividend Yield and Sectoral/Thematic Funds categories. Large-cap and multi-cap categories were the worst hit during the month, with an outflow of ₹3,876.39 crore and ₹3,540.77 crore, respectively.

Domestic institutional investors have been consistently selling stocks. They sold a net of ₹37,293.5 crore in December after a record ₹48,319.17 crore sell-off in November.

Contribution from systematic investment plans (SIP) improved to ₹8,418.11 crore in December from ₹7,302.16 crore in the previous month.

Since the last three days of November were non-business days, the SIP contribution for December includes the SIP contribution that was due on those three days, Amfi said in a statement.

The number of SIP accounts increased to 34.71 million in December from 34.07 million in November.

The total number of folios rose to 94.34 million from 93.68 million at the end of the previous month.

“The increase in retail folios and also SIP folios is reflective of investor confidence in the mutual fund asset class. On the debt side, I expect the RBI to continue maintaining accommodative stance and keep rates at current levels for the economy to play catch-up, which is reflected in positive flows in corporate bond funds owing to the schemes holding quality paper and also shorter-duration strategies, including floater and dynamic bond schemes,” said N.S. Venkatesh, chief executive, Amfi.

Overall, debt funds received a net inflow of ₹13,862.77 crore in December, out of which ₹7,410.23 crore inflow was in overnight funds, ₹5,102.22 crore in liquid funds and ₹8,609.77 crore in corporate bond funds.