Data from Association of Mutual Funds in India (Amfi) shows that even as benchmark stock indices fell in July, equity mutual fund schemes received net inflows of ₹8,133.21 crore, up 5.07% from the previous month. The inflows, however, are 14% lower than ₹9,452 crore seen in last July.
Redemptions from equity schemes rose as well, up 4.69% from a month ago to ₹12,173.81 crore. In July last year, redemptions were at ₹11,628 crore.
Markets sentiment was shaken in July due to slew of proposals in the Union budget on 5 July and macro headwinds such as consumption slowdown, sluggish demand, elusive corporative earnings and slow start of monsoon amid a liquidity crunch. However, domestic institutional investors (DIIs), including mutual funds and insurance companies, had pumped in ₹20,394.52 crore in equities, the highest monthly infusion in 2019. Foreign institutional investors (FIIs), worried about the tax surcharge on super rich, sold Indian shares worth $1.93 billion in July.
During the month, inflows from systematic investment plans (SIPs) saw a marginal increase. The total amount collected through SIPs in July was ₹8,324.28 crore against ₹8,122.13 crore in June. In July last year, SIP collection was ₹7,553.84 crore. SIPs allow people to invest a fixed amount in a mutual fund scheme periodically at fixed intervals.
N.S. Venkatesh, chief executive of Amfi, said, “Despite a difficult month and volatile market conditions, the overall sentiment towards debt, equity and hybrid mutual fund schemes has been positive, and equity SIP contributions are at an all-time high over the last three years. This conveys signs of maturity on the part of retail investors and is reflective of continued investor trust on the Indian mutual funds industry.”
Open-ended debt funds saw a net inflow of ₹61,846 crore led primarily by net inflows of ₹45,441 crore in liquid funds. However, a closer look into other debt categories indicate a more nuanced picture. Categories such as money market funds, banking and public sector undertaking funds and corporate bond funds received hefty net inflows of ₹5,063 crore, ₹5,914 crore and ₹2,573 crore, respectively. Money market funds can only invest in money market instruments such as certificates of deposit or commercial paper.
Banking and public sector undertaking funds have to invest 80% of their corpus in debt issued by banks or public sector enterprises. Corporate bond funds have to invest at least 80% of their corpus in debt rated AA+ and above. These defining features tend to lower the risk in these categories. “There’s a clear flight to safety and this will continue for a while. Credit risk funds will continue to see outflows as exit load periods expire and investors complete three years in them, moving into a lower tax rate,” said Arvind Chari, head of fixed income and alternatives at Quantum Advisors Pvt. Ltd. However, he added a caveat saying that “banking and PSU debt had a significant spread over government bonds in February/March. There is still some spread available but the majority of the capital gains to be had from that spread compression seem behind us.”
Vishal Kapoor, chief executive of IDFC Mutual Fund, concurred.
“On the debt side, investors preferred high quality assets with inflows being concentrated in the banking, PSU and corporate bond funds. Arbitrage funds also saw a sharp uptick, with investors looking for stable near-term yields through this product category,” he said.
Despite double-digit returns in gilt and long-duration funds over the past year and anecdotal evidence of sudden flows into them, investors overall did not flood this category, reflecting caution towards the interest rate risk that these categories take.
Credit risk funds, however, faced the brunt of the spate of downgrades or defaults, with the category seeing net outflows of ₹3,411 crore.