Equity flows nosedive, liquid schemes rebound

Flows into equity mutual fund (MF) schemes fell 33 per cent while that of liquid and money-market plans rebounded 2.5 times in November, data released by the Association of Mutual Funds in India (Amfi) showed.

Industry players attributed the fall in equity flows to a spike in market volatility.

But investor sentiment towards debt schemes was improving as the impact of the IL&FS crisis has been fading with bond prices rallying amid sharp drop in global crude prices.

Equity schemes reported inflows of ~84 billion in November against ~126 billion in the previous month. Despite the drop, flows into systematic investment plans (SIPs) remained close to ~80 billion. About 95 per cent of SIP flows were towards equity schemes.

The assets under management (AUM) for the equity segment stood at ~7.71 trillion, up four per cent. The benchmark Sensex gained five per cent in November, after dropping as much as 15 per cent in the previous two months.

Meanwhile, inflows into liquid schemes stood at ~1.36 trillion in November compared to ~550 billion in the previous month. At the height of the IL&FS crisis in September, over ~2 trillion had flown out of liquid and money market schemes.

“Slowly, the confidence is coming back. The worries of the credit event are seen abating and investors are returning to the money markets,” said NS Venkatesh, chief executive officer, Amfi.

The IL&FS default hit the mutual fund industry hard after investors into liquid funds had become riskaverse. Liquid funds of AUMs account for nearly a fourth of the MF industry. Fund houses with exposure to IL&FS debt papers had to mark down their holdings.

Industry players said sentiment in the debt market has improved with bond yields coming off sharply. After climbing to a four-year high of 8.12 per cent in September, the yield on the benchmark 10-year government security is currently at an eightmonth low of 7.46. Experts said yields have cooled off as fall in Brent crude prices and recovery in the rupee have eased macro-economic pressure.

Thanks to a surge in liquid inflows, the overall AUM of the MF industry rose by eight per cent to ~24 trillion in November from ~22.2 trillion at the end of October. On a year-on-year basis, industry AUM is up just five per cent. However, the industry is targeting a 25 per cent jump in asset base over the next one year.

“As India becomes one of the fastest growing economies and with inflation rates slowing down, equities are expected to perform better in the near future. We are hopeful that next year, many more investors will choose MFs as their preferred option to grow their wealth. We see the industry growing 20 per cent and AUM reaching ~30 trillion by end of 2019,” said Venkatesh.