Rising equity markets and heightened global concerns have not deterred Indian investors from putting money in mutual funds (MF), particularly through equity funds. However, investors appear to have exercised some caution in October. Inflows in equity funds have fallen to Rs 9,390 crore, down from Rs 14,500 crore that came in September 2022, according to the data released by the Association of Mutual Funds of India (AMFI) earlier today.
The good news is that money coming in through systematic investment plans (SIP) went up. SIP inflows into MFs crossed the Rs 13,000 crore mark for the first time in the history of MFs. A total of about Rs 13,040.64 crore came in MFs through SIPs in October, up from Rs 12,976 crore a month before. “Markets continue to react to global factors and domestic rate hikes. However, mutual fund investors have shown resilience and continue to invest in SIPs, with consistent contribution month on month. There is growth in overall equity AUM and Folios too," says N S Venkatesh, Chief Executive, AMFI
The lower inflow into equity funds came despite fund houses launching more new equity funds in October. To be sure though, most of the new launches in October were passively-managed funds. A total of 21 index funds and two exchange-traded funds (ETF) were launched in October, up from eight passive funds launched in September.
In October, all categories of equity funds, except dividend yield funds, got net inflows, that is more money came in than went out. In addition to diversified funds, investors also poured money in thematic and sector funds; Rs 2686 crore.The BAF bubble bursts
Surprisingly, Balanced Advantage Funds- one of the industry’s most popular categories- saw a net outflow in October to the tune of Rs 454 crore. This category of mutual fund schemes that switch your money between equity and debt, has been one of the most popular MF categories in the past three odd years. The combined AUM of this category stood at Rs 1.9 trillion, as on end-October.
To be sure, hybrid funds have been losing their appeal in recent months, as equity markets have risen since July. After a string showing in the month of January 2022 when hybrid funds collected Rs6,230 crore, and another Rs 7240 crore in May and Rs 5123 crore in June, this bunch of funds have seen net outflows (more money went out than came in) ever since. The month of October was the fifth consecutive month of net outflows from hybrid funds. And although BAFs held up their ground with net inflows (more money went in, than went out) up until October, their net inflows were gradually going down, month after month. "BAFs do well in market uncertain times. But when equity does well and goes up, BAFs lose their appeal," says Swarup Mohanty, chief executive officer of Mirae Asset Global Investments (India).A Balasubramanian, Managing Director & Chief Executive Officer at Aditya Birla Sun Life AMC attributes to rising interest rates that have been responsible for lower returns by BAFs so far this year. As BAFs switch between equity and debt, rising interest rates result in mark-to-market losses for debt securities.