Mutual fund data is released by AMFI every month. However, in the current context, the market mood is ruffled due to various reasons:
• Equity funds are not generating alpha as market movement is concentrated in a few stocks
• Sentiments about debt funds are disturbed due to certain credit events
• Balanced funds have been losing corpus for quite some time
In this backdrop, the accretions and withdrawals in various categories of funds give us a perspective on market movement. This perspective is more cogent than general perceptions and discussions, as it is reflected in hard cash. We have AMFI data till April 2019 for this discussion.
The key observations are:
Overall net inflow in debt funds is Rs 1.2 lakh crore in April. This includes approx Rs 90,000 crore net inflow into liquid funds. This is usual. Money flows out of liquid funds every March due to corporate investors’ liquidity requirements and comes back April onwards. It will be interesting to watch the movement in other i.e. non-liquid debt fund categories.
Overnight category is gaining traction, AUM being Rs 11.5 thousand crore across 16 schemes. It may look small against the AUM of Rs 5 lakh crore of liquid funds, but this being a new category, it will take time to build. AUM of overnight category is already higher than long duration (Rs 1.1 thousand crore) and gilt (Rs 7.5 thousand crore) categories, which have been around for a long time. Arguably, overnight is the safest of funds, with no default risk.
The fund category losing corpus is credit risk. This is understandable, given the negative noises about credit events. In April, the outflow was Rs 1,253 crore. The AUM at Rs 80,000 crore is less than what it used to be earlier. To be noted, the net inflow in April in corporate bond funds at Rs 3,874 crore and banking PSU fund at Rs 2,792 crore is much higher than the outflow from credit risk category.
Moreover, the combined AUM of corporate bond funds of Rs 60,400 crore and banking PSU fund of Rs 34,600 crore is already higher than the AUM of credit risk funds. Amidst the negative noises about credit risk, there is a shift happening towards better credit quality. Not to say credit risk is alarming, but the shift shows discerning investors are taking a call.
Of the 16 open-ended categories in debt, only three lost corpus in April. Apart from credit risk, the other two are medium duration fund and gilt fund, and the extent is on the lower side. In spite of RBI rate cuts, the extent to which yield levels in the market would ease is a question, due to concerns of supply of bonds and system liquidity tightness. All other categories, including dynamic bond, have gained corpus in April. This also shows that there is a discerning shift from risk (duration risk/credit risk) to lesser risk (shorter maturity/banking PSU).
The overall net inflow in open-ended debt funds in April being Rs 1.2 lakh crore, of which Rs 90,000 crore being liquid, means (a) Rs 30,000 crore is the net inflow in other debt categories and (b) concerns that mutual funds are losing corpus due to credit risk issues are not really substantiated. The categories that received corpus in April, apart from liquid, are ultra-short, money market, low duration, etc., implying, there is a preference for lesser risk. As long as you have allocation to equity in your portfolio, you need not take risks on the debt component.
Now coming to equities, the net accretion in April is Rs 4,600 crore. All categories, except large and mid-cap, saw net inflows in April. The category with the highest accretion and highest AUM is multi-cap. Inflow in April is Rs 1,800 crore in multi-cap and AUM is Rs 1.5 lakh crore.
Multi-cap funds provide the leeway to fund managers to construct the portfolio, without the restriction of top 100 stocks only or beyond top 250 stocks only. In a way, it is reposing faith in the skills of fund managers. Other categories like mid cap, small cap, etc. saw some accretion in April.
The extent of the net addition to equity funds has been relatively lower in April. Reasons are two-fold: (a) volatility in the market, global trade tensions et al and (b) distributor remuneration being impacted due to lower expense ratios.
Hybrid Funds, including erstwhile balanced funds, continue to lose corpus. The tax efficiency over debt funds is not as much as earlier, now that there is a 10 percent tax on LTCG in equity funds. Moreover, the way balanced funds were sold by some sections earlier, as “1 percent dividend every month” was wrong and has fallen flat now.
Close-ended funds, particularly FMPs, have lost corpus in April, by Rs 17,600 crore. This is usual, FMPs do good business in March and lose corpus in April due to maturities. Credit events may have contributed to it, but is not the major reason.Joydeep Sen is the Founder of wiseinvestor.in