Equity fund inflows dip 12 % in July, SIPs top Rs 15,000 crore for first time

Inflows into open-ended equity mutual funds had jumped 167 percent to Rs 8,637 crore in June 2023.

Open-ended equity mutual funds recorded a 12 percent decline in net inflow to Rs 7,626 crore in July as large-cap funds continued to grapple with outflows, data from the Association of Mutual Funds in India (AMFI) released on August 9, showed.

Despite this, Indian investors remained disciplined in their investment approach with inflows into Systematic Investments Plans (SIPs) topping the Rs 15,000 crore for the first time ever, to touch Rs 15,245 crore during July against Rs 14,735 crore in June.

Despite the marginal fall in equity fund investments, net inflows remained in the positive territory for the 29th month in a row in July amid a bull run in the equity markets. In July, the BSE benchmark Sensex scaled 2.80 percent, while NSE Nifty 50 climbed 2.94 percent.

N. S. Venkatesh, Chief Executive, AMFI, said, “The surge in retail investors' interest in mutual funds has translated into impressive inflows across scheme categories. The star performer this month has been SIP with an impressive 33.06 lakh new accounts registered and a record Rs 15,245 crores of monthly contribution. Moreover, the industry's assets under management (AUM) have grown by 25 percent on a yearly basis, underscoring mutual funds' significance in financialization of savings.”

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Thanks to the surge in debt-fund-bound investments, open-ended mutual funds saw net inflows of Rs 82,467 crore, a 63-fold spike over net inflows of Rs 1,296 crore in June.

The overall assets under management (AUM) of open-ended mutual funds increased 4.50 percent to Rs 46.11 trillion in July from Rs 44,12 trillion in the previous month.

Bullish on small-caps

The net inflows into equity mutual funds were also driven by five new fund offers (NFOs), which cumulatively collected net assets worth Rs 3,011 crore during July.

“The drop in net inflow in July from June could be attributed to some investors booking a profit with markets trading near all-time highs. Some investors would have also chosen to stay on the sidelines and wait for some rationalization to set in before they invest,” said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.

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Notably, the sharp rally in the mid-cap and small-cap segments has caught investor fancy. The segments saw net inflows of Rs 4,171 crore and Rs 1,623 crore, respectively during the month.

Indian investors have been investing in both the mid-cap and small-cap categories for a couple of years. The last time these funds suffered net outflows was in February 2021 and September 2021, respectively.

On the other hand, large cap-oriented categories witnessed net outflows to the tune of Rs 1,880 crore.

“Large cap segment has delivered good performance in recent times providing investors a good profit-booking opportunity. Investors would have also chosen to prefer currently performing mid and small-cap funds over large-cap funds,” said Srivastava.

Debt makes a strong comeback

After witnessing a net outflow of Rs 14,135 crore in June, (the end of the quarter), debt-oriented schemes received a robust net inflow of Rs 61,400 crore in July.

Liquid and money market funds saw net inflows of Rs 51,938 crore and Rs 8,608 crore, respectively.

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While overnight funds, short duration funds, medium duration funds, credit risk funds, banking and PSU funds and gilt funds with 10-year constant duration witnessed net outflow; all the other categories received inflows.

“Short term debt fund inflows continue due to treasury management by banks and corporates,” said Venkatesh.

Srivastava added, “Given the current interest rate scenario and uncertainty over the direction of interest rates in the country, it appears that many investors chose to stay cautious and continue to invest in categories with one year or less maturity profile, since they carry relatively lesser interest rate risk.”

Gold funds shine

Domestic gold exchange-traded funds saw net inflows of Rs 456 crore in July. On a year-to-date basis, inflows into the category stand at Rs 453.55 crore. Flows had been subdued in recent months as prices had run above the key Rs 60,000 mark, making investors wait on the sidelines.

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“As these new price levels were digested by investors and prices moved closer to the Rs 59,000 mark, investors seem to have used the opportunity to do some bargain buying. Also, with equity indices touching new highs in July, some profit booking in the equity space too could have diverted some flows into gold. This is in contrast to global trends where International Gold ETFs saw outflows in July,” said Ghazal Jain, Fund Manager, Quantum Mutual Fund.