AMFI data: As investors take profits in the market rally, equity fund inflows reduce to a trickle

G Pradeep Kumar, Chief Executive Officer, Union AMC says, “The drop in net flows into equity funds could be attributed partly to profit booking on the back of the rally in equity markets witnessed in June 2020.”

Contrary to the earlier perception that the COVID-19 pandemic may peak in July, the lockdowns to curb the spread are getting extended in many parts of the country. “This has resulted in loss of income and economic stress for many individuals. No wonder then that some of them opted for profit booking at the first available opportunity,” says Ravindra Deshmukh, certified financial planner and founder of Arthmitra Wealth Creators.

While investors chose to redeem their existing holdings in equity mutual funds, they have consciously sought relatively safer investment options in debt schemes. “Attractive returns given by debt funds in the recent past and the low-risk appetite of investors have made many individuals shift to debt funds,” says Gautam Kalia, head- investment products, Sharekhan.

Shunning risk

Outflows from credit risk funds continued. For June 2020, the outflows stood at Rs 1,493 crore. Investors instead opted for corporate bond and banking & PSU debt funds. Inflows in these categories stood at Rs 10,737 crore and Rs 5,477 crore, respectively. Short duration and low duration funds saw inflows of Rs 8,323 crore and Rs 12,235 crore, respectively.

For steady returns and tax efficiency, you should stick to schemes with a good track record and large size. Kalia advises investing in debt funds focusing on the short end of the yield curve for fixed income allocation. These include short duration and ultra short duration funds. “Stay away from long-term gilt funds, as the market risk is high,” he added.

Though bond funds can protect downside in volatile times, investors cannot ignore their long-term financial goals altogether. Deshmukh says, “Systematic investments in equity funds with a long-term view should be done only based on one’s asset allocation and after providing for contingency and insurance needs.”