Inflows into equity mutual funds slumped by 50 percent in May to Rs 3,240.30 crore as investors took some money off the table, data released by the Association of Mutual Funds in India (AMFI) showed.
The May equity inflows have been the lowest since November 2022, when the number stood at around Rs 2,500 crore.
Despite the fall, equity fund inflows have remained in the positive zone for 27 straight months now.
Further, inflows via the systematic investment plan (SIP) route hit the fresh record high of Rs 14,748.68 crore in May. In April, fresh investments via SIPs stood at Rs 13,727.63 crore compared with Rs 14,276 crore in March, a fresh all-time high then.
Overall, the net inflows into open-ended mutual funds stood at Rs 59,879.31 crore in May against Rs 1.24 trillion in the previous month.
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Betting on small-caps
According to experts, there was some selling seen in large-cap funds as investors chose to book profits.
“Profit booking in rising market along with probable expenses towards vacation, education could have led to lower investments in mutual funds in May," said Manish Mehta, National Head and Sales, Marketing & Digital Business, Kotak Mahindra Asset Management Company.
Indian markets have remained volatile over the past few months, with BSE Sensex rising around 2 percent since the start of the year. However, data shows that BSE Sensex has risen around 7 percent till now since March end.
In equity, large-cap funds saw net outflows of Rs 1,362.28 crore, while small-cap funds saw the highest inflows to the tune of Rs 3,282.50 crore.
In May, inflows into debt mutual funds also more than halved to Rs 45,959.03 crore from Rs 1.06 trillion in April.
Further, large&mid cap fund saw inflows of Rs 1,133.26 crore, while mid-cap funds saw buying of Rs 1,195.65 crore.
On the other hand, flexi-cap, focussed funds, tax-saving Equity-Linked Savings Scheme (ELSS) saw selling during May.
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In March 2023, net inflows into equity funds had jumped 31 percent to Rs 20,534.21 crore month-on-month (MOM), a one-year high then. February net equity inflows had stood at Rs 15,685.57 crore.
Debt flows cool down
In May, inflows into debt mutual funds also more than halved to Rs 45,959.03 crore from Rs 1.06 trillion in April.
In the debt segment, heavy net inflows worth Rs 45,234.22 crore were seen in short-term liquid funds, on the other hand, overnight fund saw outflows of Rs 18,910.27 crore.
Inflows, meanwhile, were also seen in ultra-short duration, low duration and money market funds.
"Categories with shorter duration profiles were the major contributor towards positive flows for the segment. With the expectation that the interest rate hike cycle is at its fag end and the rate cut would be gradual and after a pause, investors continue to gravitate towards categories with short to medium duration profiles such as – Ultrashort, Low duration, Money Market, Short Duration and Medium Duration. Institutional money continued to flow into the Liquid Fund category," said Melvyn Santarita, Analyst - Manager Research, Morningstar India.
Arbitrage in demand
Hybrid funds, which invest in a combination of asset classes such as equity, debt, commodity and overseas equity, saw inflows of Rs 6,092.85 crore in May.
The inflows were driven by net buying of Rs 6,639.64 crore in arbitrage funds, highlighting premium differential between spot and forward markets.
On the other hand, balanced hybrid /aggressive hybrid funds continued to see outflows as these schemes saw net outflows of Rs 996.78 crore in May.
Further, equity savings funds, which invests in arbitrage, equity and debt to generate returns, saw net inflows of Rs 444.66 crore during the month.
Gold continues to glitter
Gold Exchange-Traded Funds (ETFs) received a net inflow of Rs 103.12 crore in May, as inflows were slightly higher in April at Rs 124.54 crore.
Gold prices came off highs towards the second half of May on the back of positive news with regards to the US government raising the debt ceiling thereby providing some buying opportunity, particularly after a sharp rally it witnessed since March this year.
"With gold prices still trading at high levels, some investors would have chosen to book profits or take on risk on approach with a view that central banks would pause further rate hikes. This view seems to be materializing. That said, pertinent risks still engulf developed economies and therefore over the course of the month, investors flocked to gold ETFs which is considered as a safe haven during uncertain times," said Santarita.
Overall, the assets under management of Indian open-ended mutual funds came in at Rs 42.90 trillion during the month.
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