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Last Updated : Aug 10, 2019 07:36 PM IST | Source:

Mutual funds wrap: Did funds help stem the tide of FPI outflows during markets' fall in July?

The defaults did have an impact though. Investor accounts in credit risk funds fell. But the increase in liquid funds and equity propped up the overall numbers

Himadri Buch @himadribuch
Representative image
Representative image

The recent onslaught that took place on Indian equities, especially during the Budget and earnings announcements in July, has seen the Nifty decline  substantially, from closing at 11,788 at the end of June to 11,118 at the end July 2019.

This was a fall of more than 6 percent in Nifty. The sentiments have been muted. Foreign institutional investors (FIIs) were net equity sellers during July for a negative outflow of approximately Rs 13,300 crore.

But the response from domestic institutions, in the form of mutual fund equity behavior, has been one of long term value buys, as is evidenced from data. While mutual funds bought equities approximately worth Rs 6,500 crore in June 2019, they added another net purchase of Rs 14,840 crore in July 2019.

The mutual fund industry opened 10.29 lakh new folios in July, taking the overall folio count to 8.48 lakh crore, despite payment defaults in the debt market.

In June, the industry had added 5 lakh folios. At 10 lakh new folios, the industry witnessed the highest additions in FY20 so far.

The defaults did have an impact though. Investor accounts in credit risk funds fell. But the increase in liquid funds and equity propped up the overall numbers.

According to data on Association of Mutual Funds in India (AMFI), liquid funds, which are used by companies to park surplus cash, added the highest  investor accounts in July under income/debt category at 34,618 accounts, followed by corporate bond fund which added 15,899 folios last month.


Under the income/debt categories, credit risk funds saw the highest drop of 12,472 folios in July. Investors seem to have stayed off credit risk funds following numerous credit events, which indicated a sharp decline in their risk appetite. This is also evident from the outflows registered in this category.

As per AMFI, outflows in credit risk funds increased significantly to Rs 3,411 crore in July as against Rs 2,695 crore in June.

Credit-risk funds are debt funds that have at least 65 percent of investments in less than AA-rated paper.

The last 11 months have seen default by IL&FS group companies, rating downgrades of Dewan Housing Finance (DHFL) to 'default', a set of downgrades for multiple companies of Reliance ADAG Group and deadlock over the resolution of mutual funds’ exposure to Essel Group firms.

On the equity side, equity funds category saw a addition of 1.56 lakh new investor accounts.

Fund managers attributed the rise in a number of investor accounts to matured investor behavior as investors are not perturbed by the intermittent bouts of volatility. In fact, are adding investments in the equity funds.

Assets under management of the mutual funds industry stood at Rs 24.53 lakh crore at end of July, as per AMFI data.

Mutual funds received net fresh flows of nearly Rs 87,088 crore in July, mainly driven by stable inflows into liquid funds and equity figures.

Mutual funds and other domestic institutions becoming a countervailing factor to cross-border outflows provided strength to the Indian equity markets.

With latest news of the government looking for review of FPI surcharge tax and auto industry revival, its expected that FPI outflow may reverse and mutual funds may continue to deploy their regular SIP capital into Indian equities.

This should bode well for indian stock markets for coming months of 2019.

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First Published on Aug 10, 2019 07:36 pm
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