Inflows in the equity mutual fund schemes in May fell 15 percent month-on-month (MoM) to Rs 5,256.52 crore, according to data released by Association of Mutual Funds in India.
Commenting on the fall in inflows in equity funds, AMFI CEO N S Venkatesh said, "Market have been extremely volatile, economy too is not in too shape. GDP Projections are also negative for this financial year. This has affected the sentiment and in turn the inflows equity funds."
In terms of equity funds, the silver lining was all equity fund categories registered net inflows in the month of May.
Highest inflows were registered by large cap funds of Rs 1,555 crore, followed by multi cap funds that saw inflows of Rs 758 crore.
"Investors continue to prefer Large & Multi cap funds given the market volatility and uncertain economic environment due to the Covid pandemic," said Kaustubh Belapurkar, Director – Manager Research, Morningstar India.
Equity assets under management (AUM) in May rose 3 percent MoM to Rs 6,31,015.51 crore.
On the other hand, credit risk funds, a mutual fund category that has been suffering for almost 21 months now have seen some breather in May as month-on-month outflows have slowed down.
Credit risk outflows in May declined to Rs 5,173 crore in May from Rs 19,239 crore in April.
In the month of April, credit risk funds saw massive outflows as investors felt the impact of Franklin Templeton India closing its six debt schemes, leading to a panic in the market.
Credit risk funds are debt funds that invest roughly 65 percent of the investment corpus in less than AA-rated paper. As the risk related to investing in a lower-rated paper is higher, the returns on these papers are also high.
Fund managers said the credit risk fund has been reeling under the stress of redemptions as most of the fund houses had their underlying assets deployed in highly illiquid corporate bonds.
Given the liquidity squeeze in the lower credit space of the Indian bond markets and ensuing risk averse environment, there was a flight to safety from investors. Consequently, investors rushed to redeem their investments from avenues which they perceived as taking higher risk.
However, Venkatesh is of the view that outflows in credit risk funds have eased due to the confidence building steps taken by the Reserve Bank of India and the Securities and Exchange Board of India to calm panic.
The Reserve Bank of India (RBI), on April 27, announced a special liquidity facility for mutual funds worth Rs 50,000 crore as redemptions rose after Franklin Templeton closed six debt mutual funds rose in the last week of April.
The RBI's liquidity infusion provided a sigh of relief for most mutual funds, particularly the ones struggling with redemptions and also instilled confidence among customers, thereby reducing the pressure on liquidity.
The capital market regulator, SEBI too was at the forefront and allowed listing of mutual fund units of the schemes that were in the process of winding up. This move allowed Franklin Templeton Mutual Fund to list their units for those investors who wish to exit.
Another debt category, liquid funds which are used by companies to park surplus cash registered net inflows for the second consecutive month as inevstors from overnight funds shifted investment to liquid funds due to RBI liquidity boosting measures.
The category registered highest inflows of Rs 61,870 crore, as against inflows of Rs 68,848 crore in April.
On the other hand overnight funds saw the highest outflows of Rs 15,880 crore as investors shifted from overnight funds to liquid funds.
In May, total AUM of the mutual fund industry rose to 24.5 lakh crore, from Rs 23.9 lakh the previous month.