‘Bulk’ investors flee MFs this fiscal

Equity mutual funds have seen net inflows halve this year, compared with the corresponding period last year.

According to data published by the Association of Mutual Funds in India, this year till October, net inflows into equity mutual funds stood at ₹28,517 crore, down 49 per cent from last year’s ₹57,874 crore.

However, dig deeper into the data and you’ll find different trends within these numbers. Equity inflows for mutual funds fall within three broad categories — systematic investment plans (SIPs), arbitrage funds and lumpsum investments.

While inflows into SIPs have continued to grow, flows into arbitrage funds have fallen 68 per cent this fiscal to ₹9,826 crore from ₹14,499 crore last year.

Arbitrage funds use the price differential between the cash and derivatives market in equities to generate returns. More strikingly, equity net sales by way of lumpsum were negative till September.

Lumpsum investments in equity mutual funds saw net outflows of ₹10,147 crore till September, compared with net inflows of ₹36,762 crore till the same period last fiscal. October, in fact, was the first month with a positive figure for lumpsum investment, at ₹1,929 crore.

The divergence in fund flows, experts say, represents divergence in investment behaviour itself. There are two categories of investors in mutual funds — the retail SIPs, which are growing in popularity, and the more affluent investors who use the lumpsum route and try to time their entry and exit in the market.

Explaining the behaviour of lumpsum flows, Aashish Sommaiyaa, Managing Director and CEO, Motilal Oswal AMC, said, “People have invested lumpsums. When they see the markets fall, they don’t book losses, but the panic has struck. So, the moment it bounces back, they try to exit and preserve capital.

“That’s why you’re seeing exits by lumpsum investors. On the Nifty, for instance, we saw 8,900 levels a couple of times in 2015, after which there was news of Chinese economy failing, the global commodity crash, and rumours of the US Fed raising rates in December. The Nifty fell to about 6,700 levels in February, and in September it returned to 8,900-levels. What we saw in the last few months was the panic exit by this class of investors.”

Chandresh Nigam, Managing Director and CEO, Axis AMC, concurred. “Lumpsum investments are more sentimental and short-term oriented than SIP investors. Once they see a strong rally, many of them try to exit. But that’s not to say that lumpsum investments haven’t seen good inflows this fiscal.

“The net is affected because of redemption pressures. Now that the market has fallen again (the Nifty closed at 8,086 on Friday), the data will show that redemptions were again low in November, I’m sure we will see strong, positive net inflows.”