Equity inflows more than double to Rs 8,637 crore, smallcap fund flows at all-time high

BSE Sensex has risen by around 7 percent since the start of the year, while the index has gained 0.7 percent in June this year.

Inflows into open-ended equity mutual funds (MFs) jumped 167 percent to Rs 8,637 crore in June driven by record net investments in smallcap funds, the Association of Mutual Funds in India (AMFI) data has shown.

This is the 28th straight month when equity inflows have remained positive.

The inflows into equity funds have come on the back of the Indian market making a decent recovery from March onwards, with the Sensex gaining around 7 percent. The index moved 0.7 percent higher in June.

However, investments via systematic investment plans (SIPs) inched lower to Rs 14,734 crore in June. Inflows via SIPs had hit a fresh record high of Rs 14,749 crore in May.

N. S. Venkatesh, Chief Executive Officer, AMFI, said, "The impressive increase of 29 percent in retail AUM on an annualized basis and 25 percent in average assets under management (AAUM) indicates a positive trend of net retail inflows. It is particularly encouraging to see money flowing into equity schemes, with small-cap inflows at an all-time high.”

Overall, the open-ended mutual funds saw net inflows of Rs 1,295.83 crore in June. Additionally, the total assets under management (AUM) of open-ended mutual funds during June hit Rs 44.13 trillion against Rs 42.90 trillion in May.

Betting big on smallcaps

In the equity segment, smallcap funds continued to be in demand as net inflows surged 66 percent month-on-month to Rs 5,471.75 crore in June.

Also read | Final approval for mutual fund expected in 4-8 weeks: Zerodha CEO Nithin Kamath

“Sustained foreign fund inflows, the anticipation of favourable earnings quarter coupled with improving economic conditions propelled markets to perform well in the month gone by,” said Melvyn Santarita, Analyst - Manager Research, Morningstar India.

Interestingly, the net flows seen in the smallcap category in May 2023 (Rs 3,282.5 crore) was its highest ever recorded till date. This record didn’t last long as in June itself the category’s net flows far exceeded its previous record.

Both the smallcap Index and the Midcap Index surged during the month gone by.

Investors have been consistently investing in both these categories since a couple of years. The last time these categories witnessed net outflows was in February 2021 for midcap and September 2021 for smallcap.

“While investors have been buoyant to invest in both these categories, some mutual fund companies have recently opted to limit the flows in the small cap category perhaps due to concerns regarding valuations and difficulty to deploy money without affecting their performance,” said Santarita.

On the other hand, largecap funds continued to see selling as this category saw net outflows of Rs 2,049.61 crore during June.

Value or Contra Fund category also saw net inflows of Rs 2,239.08 crore during June against Rs 582.21 crore inflows in May.

Interestingly out of Rs 8,637 crore net inflows in equity funds, Rs 3,038 crore came in via new fund offers (NFOs) in June. Baroda BNP Paribas Value Fund collected Rs 1,457 crore during its NFO period, while HDFC Defence Fund and Quant BFSI Fund saw a total investment of Rs 1,064 crore during June.

Also read | 13 midcap stocks that are most shunned by active mutual fund managers

"June net numbers were a tad higher than May. Some profit booking at higher levels to maintain asset allocation is not ruled out but investors continue to keep investing through SIPs and STPs,” said Manish Mehta, National Head and Sales, Marketing & Digital Business, Kotak Mahindra Asset Management Company.

Debt sees outflows

Debt-oriented schemes witnessed net outflows in June after witnessing two consecutive months of inflows. Debt fund inflows plunged into the negative to Rs 14,136 crore in June against Rs 45,959 crore inflows in May 2023.

This was expected with June being the quarter end, when corporates make advance tax payments. Hence, the majority of outflows happened from the Liquid and Ultra Short Duration categories.

“Having said that, investors have continued to show interest towards Low duration and money market fund categories, as more clarity with respect to interest rate directional trend is yet to emerge. While there is a consensus that the interest rate hike cycle in India has largely peaked, there is still uncertainty as to when interest rate cut would start taking shape. This scenario continues to prompt investors to gravitate towards categories with lower maturity profiles since they are less exposed to interest rate risk,” said Santarita.

In the debt category, liquid funds turned negative as they saw net outflows of Rs 28,545.45 crore during the month. Further, Ultra Short Duration Fund also saw net selling of -Rs 1,886.57 crore during the month.

Gold remains in demand

Gold exchange-traded funds (ETFs) continue to attract flows as they received net inflows of Rs 70.32 crore in June, though it was lower than Rs 103.12 crore in May.

Also read | How to prioritise different debt repayments

Gold prices came off their highs towards the second half of May 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 a risk on approach with a view that central banks may not hike rates going ahead. That said, pertinent risks still engulf developed economies and therefore investors continue to invest some portion of their investible assets in gold ETFs which is considered as a safe haven during uncertain times,” said Santarita.