Equity mutual funds have received massive net inflows of Rs 2.79 lakh crore over the past two years. However, the net inflows dipped to 23-month low to Rs 6,606 crore in December. In contrast, the monthly SIP flows have been steady and increased to Rs 8,022 crore in December.
This indicates that investors are holding onto lumpsum to invest later. Are they following a wait-and-watch policy? Is the downward trend in the flows likely to continue?
Jimmy Patel, CEO of quantum mutual funds says that the inflows are likely to go down in near future due to multiple reasons. "The active funds have not performed off late. The so-called balanced funds with equity orientation have not delivered and were sold as a dividend product but have not paid dividends."
The equity markets have remained volatile and rangebound for quite some time. Nifty 50, the broad equity market index, has delivered a return of 2 per cent over the past one year. With the Lok Sabha elections coming in May this year, uncertainty prevails and markets are expected to remain volatile atleast till the election results are out. This may hinder the inflows in the coming months.
Apart from poor performance, there were certain regulatory changes brought in by Securities and Exchange Board of India (Sebi) in the recent past, which may have some impact on the flows as people are trying to understand the changes.
"For last few months, there have been a lot of regulatory changes for mutual funds in terms of upfront norms and TER norms, which will be effective from April. People need time to digest that and has to see what they need to do. So, lumpsum investment may see some moderation," says Radhika Gupta, CEO, Edelweiss Asset Management Company.
"The money will come in a staggered manner. Even the lumpsum money will come in via STP (systematic transfer plan)," she added.
In September 2018, the Sebi had brought in changes in the total expense ratio (TER) of the mutual funds. Apart from rationalising the TER, SEebi has also restricted payment of upfront commission in any kind to distributors by the asset management companies (AMCs) in order to curb misselling. Apart from this, AMCs will have to charge the scheme for any commission paid to the distributor, while earlier AMCs could pay distributors out of their pockets.
As the new commission regulations become effective, the inflows may get affected as the payout to the distributor may come down due to the reduction in ability to pay," said Patel of Quantum Mutual Fund.
Anil Rego, Founder & CEO, Right Horizons believes with sticky SIP book contributing in excess of Rs 8000 crore per month now, net inflows will find strong support.
"Unless there is colossal fall in the markets, we are of the view that SIPs will continue to fuel the market," said Jayant Kumar D, Head, Third party products, KSBL.
So, one will have to see how things will unfold over the next few months, especially after the new commission norms kick in from April and till the elections results are out. It is not uncommon for equity markets to go through a phase of high volatility spanning up to few years. However, equities are known to offer good returns if you are a long-term investor. So, there is no reason due to which you should get worried due to current volatile phase. If you are looking to invest a lumpsum amount in equities, it's better to go for staggered investments. However, if you have running SIPs, continue with that, and as for new SIPs, there is never a bad time.