Rs 734 crore withdrawn from Equity MFs in September: What does it say about investment trends?
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Rs 734 crore withdrawn from Equity MFs in September: What does it say about investment trends?

The biggest outflow of Rs 1,143.86 crore was witnessed in the multi-cap fund category. This was followed by Rs 576.09 crore of net outflow in large-cap fund category

  • October 9, 2020  
  • |  
  • UPDATED   14:19 IST
Rs 734 crore withdrawn from Equity MFs in September: What does it say about investment trends?
Mid cap category saw a big improvement in September

The trend of continuous exodus of equity mutual fund investors has continued for the third month in September. As per the recent AMFI data, open ended equity mutual funds faced a net outflow or Rs 734.4 crore. Though the extent of outflow subsided in September, it may take some more time before it converts into net inflow.

The biggest outflow of Rs 1,143.86 crore was witnessed in the multi-cap fund category. This was followed by Rs 576.09 crore of net outflow in large-cap fund category. The category of Value/Contra Fund also saw a significant net outflow Rs 488.66 crore.

"The assets continued to move out of Multi Cap category, which was the worst hit during the month. While the category has been witnessing net outflows since June, SEBI's recent guideline around the investment mandate for the category could have also contributed towards the net outflow this month. The other categories which witnessed net outflows are large-cap and value/contra funds," says Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.

The exodus in hybrid funds and other equity categories also continued but at lesser scale. The category of Balanced Hybrid Fund and Aggressive Hybrid Fund saw a reduced net outflow of Rs 2,004.27 crore in September as against Rs 2,355.33 crore in the previous month. The next big outflow was in Arbitrage Fund which saw a net outflow of Rs 1,732.47 crore in September as against an outflow of Rs 2,544.53 crore in the previous month.

This trend of overall outflow in equity MFs started in July when there was a net outflow of Rs 2,480.35 crore from open ended equity mutual funds which further accentuated in August to Rs 3,999.62 crore. So with the net outflow coming down to Rs 734 crore is a trend reversal.

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"It's encouraging to see the equity numbers improving in month of September as compared to August. Compared to August, in September Gross Sales has increased by Rs 2,500 crore at Rs 17,000 crore and Redemptions have also dropped by about Rs 1,000 crore at Rs 17,500 crore," says Akhil Chaturvedi-Associate Director and Head of Sales and Distribution, Motilal Oswal AMC.

Moreover, there are also many categories of equity mutual funds which received good amounts of net inflow. The biggest beneficiary was Focused Fund category which saw a net inflow of Rs 823.53 crore, followed by Large & Mid Cap fund category with inflow of Rs 621.48 crore.

"Both the categories have seen launch of new funds which garnered good traction from investors. Additionally, uncertainty around the multi-cap category would have prompted investors to focus on categories such as large & mid cap instead," says Srivastava of Morningstar India.

Mid cap category which registered a net outflow of Rs 602.98 crore in August saw a big improvement in September with net outflow of only Rs 67.61 crore. Small Cap funds on the other hand have seen a complete turnaround as against the outflow of Rs 104.39 crore in August, they got a net inflow of Rs 132.91 crore in September.

"We see that Gross sales has increased in Large & Mid Cap, Focused and Small - Mid Cap categories. Suggested changes by regulator in the Multi Cap fund (i.e. min 25% exposure to Large, Mid and Small Cap respectively) has possibly led to some opportunistic buying in small and mid cap funds," says Chaturvedi of Motilal Oswal AMC.

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The number of folios as well as funds mobilised during the month was higher than August, and the redemption amount too came down.

There was also a mark improvement in number of folios added during September, which was higher than August. Equity funds also witnessed lesser redemptions this month. "This indicates that while there are investors who chose to book profit given the surge in the equity markets across segments in the recent times, there are set of investors who have started to invest in the markets as well. The markets also corrected mid-month which would have also given a good investment opportunity for investors," says Srivastava of Morningstar India.

What the trend in equity MFs suggests is that most of the equity investors who wanted to exit have done so already. "Better sales numbers in equity MF could also be a function of markets recovering back to pre-COVID levels, early signs of an impending economic recovery thus leading to increase in investors' appetite for equities," says Chaturvedi of Motilal Oswal AMC.

The investment sentiment is improving and remaining investors appear to be ready for long haul. October will be a month to watch out for as it will re-affirm if investments in equity MF return to pre-COVID growth.

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