Equity inflows drop but SIP figures at all-time high; what should you do?

India's mutual fund space witnessed an interesting dichotomy in November.

Net inflows into equity mutual funds (MFs), including closed-ended schemes, stood at a mere Rs 933 crore against Rs 6,015 crore in the previous month, latest data released by the Association of Mutual Funds in India (AMFI) shows.

On the other hand, investment in equity funds through systematic investment plans (SIPs) saw a strong momentum at Rs 8,273 crore.

The fall in equity MFs net inflow is primarily due to redemptions in value funds, multi-cap funds and sectoral funds.

Overall, the mutual fund industry saw its total asset under management (AUM) hitting Rs 27 lakh crore as of November from Rs 23.59 lakh crore a year ago. That represents a 15 percent growth in assets year-on-year (YoY).

Clearly, there is a shift in inflow in liquid funds and experts think it is along expected lines, as gross inflows have increased month-on-month, which shows that investors are not panicking but rebalancing their portfolios.

“The net inflow in liquid funds is affected due to the institution of exit loads in such funds recently and the consequent shift in investor preferences to overnight funds and even ultra short-term funds. This was very much expected," said Joseph Thomas, Head of Research, Emkay Wealth Management.

Thomas is of the view that investors are avoiding risks in the light of weak macroeconomic numbers.

"The fact that the GDP growth is quite low and therefore, the expected earnings, too, maybe prompting investors to wait for a little more till they see the green shoots," he said.

Vineeta Sharma, Head of Research, Narnolia Financial Advisors, concurs.

"The fall in inflows, along with the composition change, suggests equity participants getting wary of the volatility of the market owing to the uncertainties regarding economic growth," she said.

Overall mood

Indian Equity markets have been getting support from mutual fund-buying month after month and the fall in net inflow means that the foreign institutional investors (FIIs) hold the key.

"The reduction in the net inflow has increased our dependencies on FII flow. As global markets remain uncertain…, the market will keenly watch high-frequency numbers for estimating growth ahead along with the fiscal deficit estimates," Sharma of Narnolia said.

Besides, experts interpret all-time high SIP figures as an indication that mutual fund investors are bullish on the long-term potential of equity.

"Investors have understood that being in the market and systematically putting money is the best approach to take and hence, we have seen growing confidence in investing money through the SIP route. Due to the uncertainty in the market and the liquidity crunch, investors are more comfortable using the STP and SIP route of investments rather than lump sum. We see this trend growing and gaining further strength with time," said Jharna Agarwal, Head, Anand Rathi Preferred.

Agarwal expects the trend to move upwards as the markets will remain uncertain for a couple of more quarters due to the weakness in the domestic economy.

Harsha Upadhyaya, Chief Investment Officer-Equity at Kotak Mahindra Asset Management Company, said investors are taking the SIP route to beat volatility in the market.

"Despite increased volatility in the market, investors are making disciplined and regular investments through SIP. Generally, these kinds of investors are more long-term oriented and also less worried about short-term ups and downs," Upadhyaya said.

What should you do?

It appears that investors with a long-term horizon and those who have stuck to an asset-allocation approach still have faith in the market. Experts’ advice is to keep the volatility of returns in mind.

"It is imperative to have a responsible investment approach and be conscious of assets in which their money is parked. Asset allocation has the highest impact on the volatility of returns and so the majority of an investor’s time should be utilised in aligning the same with one’s risk appetite," Agarwal of Anand Rathi Preferred said.

At this juncture, the best approach to investing will be a phased one, focusing on quality portfolios and reasonable value based on objective earnings estimates,” Thomas of Emkay Wealth Management said.

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