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Investors bail out of short-term funds, keep faith in equity schemes

Liquid or money market fundsshort-term debt schemes where investors park idle money— saw outflows of ₹2.11 lakh crore in September.

ET Bureau|
Oct 09, 2018, 09.54 AM IST
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September was a month of contrasts for the mutual fund industry. While investors pumped money into equity schemes in the wake of the stock market declines, short-term debt schemes witnessed sharp outflows triggered by the ratings downgrade of IL&FS and withdrawals by companies to pay their quarterly advance taxes.

Liquid or money market fundsshort-term debt schemes where investors park idle money— saw outflows of ₹2.11 lakh crore in September compared to inflows of ₹1.71 lakh crore in the previous month, according to trade body AMFI. Retail investors poured ₹11,172 crore into equity mutual funds during the month compared to ₹8,375 crore in August.

The total assets under management of the industry fell to ₹22.04 lakh crore in September compared to ₹25.2 lakh crore in August. The fall in overall assets was due to the outflows from debt schemes.

“There has been some flight to safety amongst corporate investors, post the IL&FS episode. However, it is difficult to ascertain the amount of money that has flown out specifically due to IL&FS issue,” said a fund manager at a domestic fund house, who did not wish to be named.

In income funds, a debt product, investors redeemed ₹32,500 crore compared to outflows of ₹6,500 crore in August. A year ago, in September 2017, the industry had seen outflows of ₹50,090 crore from income funds and flows of ₹4,833 crore into liquid or money market funds.

“There have been some redemptions from corporates to pay advance tax and by banks to meet capital adequacy norms in the September quarter, which is normal. A lot of this money will start coming back from October,” says Murthy Nagarajan, head (fixed income), Tata Mutual Fund.

The drop in the stock market did not dent flows into equity-oriented mutual funds as retail investors continued to pour money through systematic investment plan (SIP) and systematic transfer plan (STP). The Sensex fell 6.25% in September. During the month, mobilisation of investments via systematic investment plan (SIP) touched an all-time high of ₹7,727 crore, compared with ₹7,650 crore in August.

“A lot of investors are buying the dips and believe in staying invested for their long-term goals. As markets have been expensive in terms of valuations, many investors continued to use systematic transfer plans, where instead of making a lumpsum investments they transfer money from liquid fund to equity fund every month,”says Amol Joshi, founder, Plan Rupee.

Retail investors have been buying the dips in the last couple of years. In August 2017 when the Nifty dipped below 10,000 and valuations dipped, retail investors poured in ₹20,300 crore into equity mutual funds.

“Retail investors have taken volatility in their stride and continue to stay invested. They have accepted SIP as a concept and continue to average their investments to reap benefits in the long term,” said NS Venkatesh, CEO, Association of Mutual Funds (AMFI).

Money flow: Inflows into equity- oriented mutual fund schemes (Rs crore)
Month Equity ELSS Balanced
September 10,237 935 731
August 7,734 641 2,630
July 8,512 940 287
June 8,794 866 1,487
May 10,444 906 2,666
April 10,724 447 3,500
March 2,954 3,703 6,754
February 14,683 1,585 5,026
January 13,404 1,986 7,665
*Source: Amfi

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