Investors shrug off volatility, equity fund inflows surge 72% in January

Gold exchange-traded funds continued to outflows at Rs 199.43 crore.

Investors continued to repose faith in equities as inflows into open-ended equity mutual funds surged 72 percent to Rs 12,546.51 crore in January even as the Indian market remained flat, data provided by the Association of Mutual Funds in India (AMFI) showed on February 9.

The systematic investment plan (SIP) book also remained strong as the inflows via this periodic investment vehicle jumped to Rs 13,856 crore, a fresh record high, during January 2023. The number was Rs 13,573 crore during December.

Akhil Chaturvedi, chief business officer, Motilal Oswal Asset Management Company, said, “Strong flows for the month supported by SIP inflows, despite a volatile month with markets being subdued the net positive flows is a sign of increasing maturity of investors to continue their allocations in equity mutual funds.”

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This is the 23rd straight month when the inflows into equity funds have remained positive. The benchmark equity indices the Sensex and the Nifty ended January 2 percent lower from the previous month.

"Despite fears around a recession in the US, Indian markets continued to witness flows likely based on expectations around growth in the Indian markets. As investors make conscious investing decisions, their overall preference towards investing in dips is evident from the magnitude of flows into small and mid-cap stocks," said Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India.

In December, inflows into open-ended equity mutual funds had jumped three times to Rs 7,303.39 crore from the previous month.

In November, investors were a bit jittery about pricey valuations and inflows into the equity funds slumped to Rs 2,258 crore against Rs 9,390 crore in October.

Steady equity flows

In January, after three months of decreasing net flows, equity category flows were higher than the Rs 10,000 crore mark. Despite the volatility in stock markets, investors continue to repose faith in equity mutual funds, as evidenced by the Rs 12,547 crore of net inflows in January.

"Small-caps have witnessed inflows, majorly driven by the retail investors as their investment is for long-term return cycle. Encouraging SIP numbers indicate retail investors’ trust in Mutual Funds. We believe that SIP inflow momentum has and will continue to balance the FII outflows in the market, said N S Venkatesh, chief executive at AMFI.

Small-cap (Rs 2,256 crore), large & mid-cap (Rs 1,902 crore) and multi-cap (Rs 1,773 crore) mutual fund schemes were the preferred categories for investors.

“As the Nifty Small Cap index underperformed the Nifty 50 index by more than 13 per cent since January 2022, value has emerged in small-cap stocks,” said Gopal Kavalireddi, Head of Research at FYERS.

Fixed income stays muted

Fixed-income funds also continued to see outflows as the debt or income-oriented category saw net selling to the tune of Rs 10,316.15 crore during January.

Major sell-off was in liquid funds (Rs -5,042 crore), short-duration funds (Rs -3,859 crore), and overnight fund (Rs -3,688 crore).

On the other hand, money market funds saw net inflows to the tune Rs 6,460 crore.

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With interest rates rising, investors were taking money out of short-duration, corporate and banking & PSU funds as they are under the impression that these categories may not make them much money.

Other categories

With the interest rate hike cycle still in progress, hybrid funds continued to find support, with a net flow of Rs 4,492 crore in January, doubling down on the flows of last month.

Multi-Asset and arbitrage funds saw net flows of Rs 2,182 crore and Rs 2,055 crore, respectively. On the other hand, dynamic asset allocation or balanced advantage fund saw minor outflows of Rs 218 crore.

Index funds saw inflows of Rs 5,813.16 crore. On the other hand, gold exchange-traded funds continued to see outflows at Rs 199.43 crore.

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Overall AUM stays flat

Overall, the total assets under management of the mutual fund industry stayed below the Rs 40 trillion mark at Rs 39.62 trillion during the month.

The AUM was flat with a negative bias (-0.7% for the month). Equity AUM stood at Rs.15.06 trillion, with debt AUM at Rs.12.37 trillion.

The overall AUM has remained in a similar range, mirroring the flat returns by the benchmark index since August 2022.

Despite the persistent selling by foreign institutional investors (FIIs) since the end of 2021, domestic investors and retail countered the negative impact of outflows through robust infusion into the equity markets through systematic investment plans.

“While reallocation between categories was expected due to changing interest rate environment, equity investments continue to be the dominant choice for investors,” said Kavalireddi.