Inflows into equity MFs moderate further in February but SIP flows remain a bright spot

Neha Dave
Moneycontrol Research

Overall assets under management (AUM) of the mutual fund industry stood at Rs 23.16 lakh crore as at February-end, almost flat compared to the previous month as per data released by the Association of Mutual Funds of India (AMFI) on March 8.

The industry witnessed a total outflow of Rs 20,083 crore in February compared to an inflow of Rs 65,439 in January on the back of a moderation in flows into equity funds and redemptions in liquid funds.

Equity inflows tapering down
Inflows into equity funds (including equity linked saving schemes) declined 17 percent on a month-on-month (MoM) basis to Rs 5,122 crore in February. The decline can be attributed to fading equity outlook, market volatility and weak global cues.

SIPs flows continue to hold up
While the overall equity flows have been weakening, investment in equity funds through systematic investment plans (SIPs), which is a relatively sticky, continued to hold fort with Rs 8,095 crore of SIP funds mobilised in February.

The high share of SIP contribution has been the key success story of the MF industry in the past couple of years. If the current monthly SIP run-rate of Rs 8,000 crore is sustained, the industry will receive equity inflows of at least Rs 1,00,000 crore in the next fiscal, which is sizeable.

What are the key takeaways from equity flows?
Monthly equity inflows have come off significantly from the high of Rs 20,308 crore seen in November 2017. That said, the underlying trend is very encouraging as SIP flows are resilient and indicate buoyancy of retail flows.

Thanks to strong equity inflows of Rs 100,102 crore in FY19 so far, the Indian equity market has endured selling by foreign portfolio investors to the tune of Rs  27,500 crore during the same period. In the absence of strong domestic inflows, FPI selling would have wreaked havoc.

Having said that, the resilience of domestic equity flows will be put to test in coming months as we head closer to general elections. The moot question is will domestic equity flows sustain? There is no clear answer to this as a lot hinges on election outcome. So far, while fresh investments into equity MFs have come-off, the industry is not witnessing significant cancellation of SIPs. However, such a scenario can unfold in case of a fractured mandate in the upcoming Lok Sabha polls.

While demonetisation still continues to be widely discussed for its efficacy, the action surely gave boost to 'financialisation of savings' (increased size of the financial sector) and accelerated flows into equities through MFs. Added to that, various initiatives and campaigns of the industry body (AMFI) and market regulator (SEBI) like 'Mutual Funds Sahi Hai' have drawn small retail investors. But more importantly, such investor awareness campaigns seems to have altered the retail investors’ behaviour who traditionally withdrew funds following a year of negative returns. That said, the upcoming elections will be a real litmus test for equity flows.

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