Further market volatility risk to retail MF flows: Deutsche

Moneycontrol BureauThe ongoing market volatility has not yet impacted retail investor sentiment, but if it persists, inflows into equity mutual funds could taper off, or there could even be redemptions, says a note by brokerage house Deutsche India Equities. “While we believe the macro environment appears conducive for extension of the structural shift in household savings from physical assets to financial assets, continuation of the recent equity market correction (particularly in midcap stocks) may negatively impact retail investor sentiment, which can have a bearing on future flows for equity mutual funds,” says the Deutsche note.According to the brokerage, equity mutual funds have witnessed net inflows for sixteen consecutive months till August, aggregating to USD 19 billion, the longest and highest streak of inflows on record.This unprecedented retail interest has helped mutual funds cushion the impact of heavy selling by foreign institutional investors, on the benchmark indices.Between June and August, mutual funds net bought over Rs 26,000 crore of Indian equities while FIIs net sold around Rs 20,000 crore of shares.The steep fall in equity prices since the last week of August has wiped off a substantial chunk of returns of equity mutual funds over the last year.There has been no let up in FII selling even as the equity benchmark rebounded in the last couple of trading sessions. According to provisional figures released by stock exchanges, FIIs cumulatively net sold over Rs 1100 crore of equities on Tuesday and Wednesday.Deutsche Equities says the pipeline of tax free bonds could be another dampener for equity mutual funds.“Thee pipeline of tax-free bonds of around USD 6 billion can also have an impact on incremental flows into equity MFs,” says the Deutsche note.Also read: As FIIs flee, mutual funds turn Big Boys on Dalal Street