The Association of Mutual Funds of India (AMFI) released its monthly data for May 2021, which gave some interesting insights about the Mutual Fund industry’s performance amidst the ongoing COVID-19 pandemic. Particularly, liquid funds have been gaining traction, with the masses waking up to the significance of emergency funds during these times, along with the massive redemptions from these funds in the face of increased hospitalisations, medical emergencies, and more.
The industry, at large, however, registered a robust growth. The value of assets under management (AUM) in terms of retail investors grew by around 39.28 percent on a Y-O-Y basis, from Rs 12.25 lakh crore in April 2020 to Rs 17.06 lakh crore in April 2021, as per AMFI data.
While the number of liquid fund schemes remained unchanged at 39 for both April and May, there was a marginal drop in the number of folios, which suggests a cumulative outflow of funds. Notably, April 2021 was a devastating month for India, with the country crossing the 2 lakh figure in terms of the death toll, which currently stands at around 3,50,000.
Liquid funds, considered to be one of the safest classes of debt securities, promise high liquidity since they invest in market instruments like treasury bills and commercial papers that mature within 90 days and have no lock-in period. These funds offer better returns than FD (Fixed Deposits) and hence, are often recommended by experts to have in your portfolio if you are looking to invest your funds for a short period of time or as an emergency fund. While FDs offer returns in the range of 2-5 percent, liquid funds go a notch above by offering annual returns of up to 7 percent.
“It is important to have some emergency cash stowed away in liquid funds, preferably equivalent to your expenses of 6-12 months. Liquid funds give you the opportunity to generate slightly higher returns on your idle money, which means you can always rely on having a little more in times of need”, said Delhi-based financial planner Himanshi Gupta.
What was noteworthy, however, was the steep fall in the total amount amassed for liquid funds between April and May. Around Rs 1,98,000 crore was pumped into liquid funds in May, as compared to almost Rs 2,50,000 crore in April. The net outflows were also higher in May, standing at Rs 45,000 crore as compared to an inflow of Rs 41,000 crore in April.
All of this also pointed towards a higher fund redemption figure in May (Rs 2,40,000 crore) as opposed to April (Rs 2,10,000 crore). Having an emergency fund came in handy for timely medical treatments for my family members, said Noor Sharma, who works in Delhi and is one of such people. “I am glad that the medical expenses did not completely eat into my savings, thanks to my investments in liquid funds”, she says.