Equity fund inflows jump 28% to Rs 21,781 crore in January, SIP book hits fresh record high

Venkat Chalasani, Chief Executive, AMFI said, "It is abundantly clear that we are in an era of growth and participation through financial savings instruments. The surge in SIP accounts to an unprecedented 7.92 crore in January, coupled with the milestone of 51.84 lakh new SIP registrations, underscores the unwavering commitment of investors towards disciplined wealth creation,"

Overall, net inflows into open-ended equity funds came in at Rs 1.23 trillion against a net outflow of Rs 42,761 crore in December.

The overall AUM of the mutual fund industry stood at Rs 52.74 trillion in January against Rs 50.78 trillion in December.

The assets under management of the Indian mutual fund industry rose above Rs 50 trillion (Rs 50 lakh crore) in December thanks to the continuous inflows and rally in Indian equity markets.

In December, net inflows into open-ended equity mutual funds gained 9 percent to Rs 16,997 crore against Rs 15,536 crore in November.

Shift towards large-cap funds

The highlight of January data was the fund flows into the largecap category at Rs 1,287 crore, the highest in more than 13 months. Midcap funds saw net inflows of Rs 2,061 crore, while smallcap fund inflows fell 16 percent to Rs 3,257 crore in January.

“Largecaps demonstrated positive contributions last month, reversing the net outflows experienced in December. This shift in trend is in line with valuation differentials among large versus midcaps and smallcaps, suggesting that largecaps or flexicaps-oriented schemes may attract higher flows in the future. Market and investor sentiment leading up to the general elections year remain positive," said Akhil Chaturvedi, Chief Business Officer, Motilal Oswal Asset Management Company.

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Meanwhile, multicap funds also witnessed a significant increase, reaching Rs 3,038 crore in January 2024 from approximately Rs 1,852 crore in December.

“With midcaps at 15 per cent and smallcaps at over 20 percent premiums, investors are realising the considerable valuation gap with the largecap segment, and accordingly making adjustments to their investments. Though smallcap funds garnered greater than Rs 3,000 crore of net flows for the fourth consecutive month, the quantum was lower by Rs 600 crore on a month-on-month basis. After a 50 per cent drop in net flows into midcap funds, investors came back strongly with a 48 per cent rise in net flows,” said Gopal Kavalireddi, Vice President of Research at FYERS.

Debt flows turn positive

In January, there was a shift in investor sentiment towards debt-oriented funds. Following two consecutive months of outflows, these funds saw a turnaround, witnessing net inflows to the tune of Rs 76,469 crore against net outflows of Rs 75,550 crore in December.

According to Morningstar Investment Research India, the primary driver behind this surge in inflows was the liquid fund category, experiencing a notable revival.

The significant net inflows were seen in overnight, liquid and money market funds. Liquid funds recorded the highest net inflows of Rs 49,468 crore, followed by money market funds that saw net inflows of Rs 10,651 crore and overnight funds with a net inflow of Rs 8,995 for January. Other categories with less than one year of maturity such as ultra-short duration and low-duration funds, also experienced net inflows.

"While other categories, although witnessing modest inflows are from long duration categories. The inflows into corporate bond, long duration, Gilt and long to medium duration confirms that investors are now taking bets in these categories, fuelled by growing anticipation of interest rate easing," said Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India.

Hybrid flows stay strong

The hybrid fund category continued to see strong growth with net inflows of Rs 20,637 crore during January, registering a rising trend for the fourth straight month now.

Hybrid funds, which invest in a mix of asset classes such as stocks and bonds, and at times, gold and silver flows, have remained positive starting with April 2023. The tide turned in favour of this category after Budget 2023 made debt mutual funds unfavourable from the taxation perspective.

In the hybrid category, multi-asset allocation funds observed notable inflows of Rs 7,079 crore, a significant increase from Rs 2,420 crore in the previous month.

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Most of these inflows were fuelled by new fund offers (NFOs) of three multi-asset allocation funds. Three new funds, Bandhan Multi Asset Allocation Fund, Mirae Asset Multi Asset Allocation Fund and Sundaram Multi Asset Allocation Fund, garnered Rs 4,247 crore during their NFO period last month.

“With volatility and uncertainty impacting the market owing to higher valuations and other domestic and global events, investors are opting to diversify across asset classes and avoid any harsh drawdowns,” said Kavalireddi.

Other categories

In the passive fund category, inflows into index funds jumped 325 percent to Rs 2,988 crore during January.

Gold exchange-traded funds (ETFs) also remained in demand as inflows jumped to Rs 657 crore against RS 88 crore in the previous month.

Melvyn Santarita, Analyst, Morningstar Investment Research India Private said, “With ongoing geo-political tensions, US inflation still higher than the desired number, the appeal of gold as a safe haven and hedge against inflation is expected to continue. Gold prices in the US dollar terms scaled new highs after going past the $2,100 per ounce mark in early December 2023 but since then has come down gradually.”

In INR terms, gold has done fairly well over the last year but dwarfs in comparison to how equities have fared.

“Given this backdrop, flows in the Gold ETF category have been somewhat patchy. Some investors could be choosing to opt for a risk-on approach to investing with the anticipation of a reversal in rate cycle going ahead,” said Santarita.