Investors pulled out over Rs 7,200 crore from equity-oriented mutual funds during the July-September quarter this year as expensive valuation diverted them towards profit-booking.
In comparison, such schemes had witnessed a hefty inflow of Rs 23,874 crore in the same quarter last fiscal, data from the Association of Mutual Funds in India showed.
Although, the asset base of equity mutual funds (MFs) slightly increased to Rs 7.64 lakh crore by the end of September 2020 from Rs 7.24 lakh crore as of September 2019.
As per the data, outflows from equity and equity-linked schemes were at Rs 7,214 crore in the three months ended September, while such schemes saw inflows to the tune of Rs 11,710 crore in the June quarter and Rs 30,703 crore in the March quarter.
Of Rs 7,214 crore outflows, the schemes witnessed a pull out of Rs 2,480 crore in July, which was the first withdrawal in four years, Rs 4,000 crore in August and Rs 734 crore in September.
"Investors continue to book profits in equities and hence there is an outflows in last quarter," said Harshad Chetanwala of MyWealthGrowth.com.
"If we look from folio perspective, during July-September 2019, there was a net addition of 12.27 lakh folios whereas this year during the same quarter it is just 1.53 lakh. This is because new investors addition in equity funds have dropped and existing investors continue to redeem their investments in the previous quarter," he added.
He further said sharp recovery in stock markets the in last six months is another crucial factor in overall outflows.
Echoing similar views, Pranjal Kamra, CEO of Finology, said the market benchmark has seen an upward trend making the overall valuation expensive, which might be diverting the investors towards profit-booking.
He said macroeconomic environment at the moment is uncertain with US elections round the corner and the economy is still in a recovery phase with respect to the COVID-19 crisis. This also contributed to outflow in equity mutual funds.
In terms of segment-wise, multi cap was the worst hit with an outflow of Rs 3,334 crore, followed by large-cap (Rs 2,495 crore), value fund (Rs 1,817 crore) and mid-cap (Rs 1,250 crore).
On the other hand, focused fund, equity-linked saving schemes (ELSS ) and sectoral category saw inflows of Rs 1,363 crore, Rs 269 crore and Rs 205 crore respectively.
According to Kamra, a regulatory change has forced amendment in the multi-cap mandate due to which the entire category is experiencing redemption pressure.
Nilesh Shetty, Associate Fund Manager, Quantum AMC, said investors have chosen to invest directly into equities instead of investing via mutual funds, which may have caused outflows from MF schemes.
Inflow through Systematic Investment Plans (SIP) dropped to Rs 23,411 crore in the period under review compared to Rs 24,818 crore in the July-September quarter of the preceding fiscal 2019-20.
Going ahead, Kamra said the economic outlook remains uncertain and "the inflow into equity funds will take time to rebound (reaching the previous year levels is far-fetched)".
However, the ELSS category may see a good inflow in the coming quarter(s) as people will likely resort to tax-saving measures during the end of financial year, he added.
Shetty believes there is a long-term story of investments in equity mutual funds to increase given the low existing allocation. But in the near term, there could be withdrawals if risk aversion remains high.