Net inflows into MFs in FY17 highest in at least 11 years

MUMBAI: As bank deposit rates fell and stock markets rose, mutual funds in 2016-17 received the highest net inflows in at least 11 years, led by income and liquid schemes.

Net inflows in the fiscal year ended March rose 155.66% from a year before to ₹3.43 lakh crore, the highest since at least 2005-06 when the equity market was gaining traction, data from the Association of Mutual Funds in India (Amfi) showed. Data prior to 2005-06 was not available.

India’s benchmark stocks index Sensex has delivered a compounded annual growth rate (CAGR) return of 8.38% from 2005-06 to 2016-17.

“A rise in systematic investment plans (SIPs) is the most important factor contributing to the rise in inflows into mutual funds. Investors are also more aware and disciplined in investing from a long-term perspective,” said Gopal Agrawal, chief investment officer (equities) at Tata Asset Management Co.

Mutual fund SIPs allow investors to regularly invest small amounts that go into equities, instead of making lump sum investments at various points of time. Such investments are mostly made on a monthly or quarterly basis.

Income and liquid schemes received maximum net inflows during the period, Amfi data showed. Net inflows in income schemes rose more than sevenfold to ₹1.2 lakh crore, while that in liquid funds grew more than four times to ₹ 95,826 crore.

“Income and liquid schemes have surged and such rise is triggered due to low interest rates from bank deposits,” said Raghvendra Nath, managing director of Ladderup Wealth Management Pvt Ltd.

He pointed out that in the last three to four years, average returns from corporate debt is in the range of 9-9.5%. That gives them a positive indicator.

Nath added that currently, bank fixed deposits return 3.5-4%, which is below inflation rates.

Vidya Bala, head of mutual fund research at Fundsindia.com, agreed.

“For the liquid schemes, it is largely the institutional flows. It is mainly meant for parking institutional money,” said Bala.

“People have flocked to income funds after the drop in fixed deposit (FD) rates. A number of investors have switched to debt funds from FDs, and that trend will continue for a while,” said Bala, adding many of these were first-time mutual fund investors who prefer this option to traditional bank fixed deposits.

“The more conservative investors would prefer income funds to equity-oriented funds,” added Bala.

Net inflows into equity schemes in 2016-17 dropped 4.94% to ₹70,367 crore from a year before.

However, interest in equity funds is growing, say asset managers, pointing to the near-92% rise in inflows into them since 2005-06.

“Investors are aware that Indian economy is on a strong footing. Relative attractiveness of equities as an asset class has increased as other alternatives cease to be as attractive as before,” said Agrawal of Tata Asset Management, pointing to the decline in the rates of bank deposits.

“The long-term outlook on the economy and the markets looks positive,” added Agrawal.

Nath of Ladderup says the outlook for equity inflows was positive and he expects a deluge of inflows into the asset class over time.