Volatile stock markets are seen taking a toll on investor sentiment. Net inflows (more inflows than outflows) in equity mutual funds fell by 42 percent in July to Rs 8,898 crore compared to Rs 15,497 crore in June 2022 – a drop of 42 percent, as per the monthly data released by the Association of Mutual Funds in India.
The total assets under management for the mutual fund industry rose to Rs 37.74 trillion as of July 31, 2022, compared to Rs 35.64 trillion. The debt funds saw net inflows of Rs 4,930 crore in July compared to net outflows of Rs 92,247 crore in the previous month.
Contribution through systematic investment plans – the preferred means of investing in mutual funds for individual investors, fell marginally to Rs 12,139 crore in July compared to Rs 12,275 crore in the previous month. The SIP accounts went up to 5.61 crore in July compared to 5.55 crore in the previous month.
Among equity funds, small-cap funds and flexi cap funds were prominent gainers as they received net inflows of Rs 1,779 crore and 1,381 crore respectively. All open-ended equity fund categories received net inflows in July.
Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC says, “July seems to be month where investors has taken some profits off as markets went up. Momentum was coming down all through last few months as the markets were correcting but July was a steep fall and excluding SIP numbers, we might have witnessed actual net negative sales in July."
Debt fund collections slow due to rising interest rates
Among debt funds, liquid funds and floater funds saw net outflows of Rs 7,692 crore and 4,681 crore respectively. Banking & PSU debt funds saw net outflows of Rs 2,809 crore. Overnight funds received net inflows of Rs 19,918 crore.
NS Venkatesh, Chief Executive, Association of Mutual Funds in India says, “RBI is in the inflation-fighting mode and they are raising interest rates. Duration funds tend to underperform because of which investors may have pulled out of the debt funds.”
Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India says, "This is likely indicative of investors parking their money in short term funds while they await a market correction before they can find the right avenues to invest in."
The hybrid funds continue to lose money in July. These schemes that invest in a mix of stocks, bonds, and gold saw net outflows of Rs 5,146 crore in July as compared to Rs 2,279 crore in June. Arbitrage funds saw the highest outflows of Rs 6,407 crore compared to Rs 5,593 crore in the previous month. Volatile markets lead to shrinking spreads and scarce spot future arbitrage opportunities, which makes investors consider selling their investments in the arbitrage funds.
Gold Exchange-traded funds (ETF) also saw net outflows of Rs 456 crore in July compared to net inflows of Rs 134 crore in the previous month. Strong dollar though pushed the prices of gold in US dollar terms, and a weak rupee against the greenback ensured that the gold prices do not fall in rupee terms. This has made investors book some profits in July and wait on the sidelines for better entry opportunities.
NFOs are back
Mutual fund houses have started launching new fund offers from July 1 as they put in place the new system of funds movements from investors to mutual funds. Nine new fund offers across open and closed-ended mutual fund schemes managed to raise Rs 1,446 crore in July 2022.
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