‘Small-cap funds see outflows in March, first time since Sept 2021’

SMALL-CAP MUTUAL funds witnessed outflows for the first time in 30 months in March 2024 after stress test results disclosed by the asset management companies (AMCS), last month, led to investors pulling out money.

Equity schemes saw a 16 per cent reduction in month-onmonth inflows in the month, the latest data from the Association of Mutual Funds in India (AMFI) showed.

Net outflows from the small-cap funds stood at Rs 94.17 crore in March; last time this category saw outflows was in September 2021, to the tune of Rs 248.73 crore.

“We have made disclosures and we have also made available information about various stress tests that are done by the (mutual fund) industry. There was a negative reaction from the market (to the stress test results). So, we have seen outflows of Rs 94.17 crore (in March 2024),” said Venkat Chalasani, Chief Executive, AMFI.

He said as some of the asset management companies have put restrictions on lump sum flows into small-cap funds, the pace of new flows has also reduced slightly. In March, total inflows into small-cap funds stood at Rs 5,721.99 crore whereas redemption was to the tune of Rs 5,816.16 crore, the AMFI data showed.

Last month, the markets regulator, SEBI, and AMFI had asked fund houses to take steps to ensure investors are protected

from the froth, which was building up in the small and mid-cap segment.

The stress test results for small and mid-cap funds, released by the Association of Mutual Funds in India (AMFI) in March, showed that mutual funds will take at least five days to exit 25 per cent of small-cap funds having assets under management (AUM) of around Rs 5,000 crore, while they may be able to do so between one to three days in case of mid-cap schemes of a similar size. To exit 25 per cent of their smallcap funds with a size below Rs 5,000 crore, fund houses will take up to one to two days, and will require up to a similar time to liquidate mid-cap schemes of the same AUM.

“While till February, equity inflows predominantly favoured mid and small-cap funds, we have seen slight halt in March. Many investors gravitated towards small-cap funds, driven by high return prospects, however, a disproportionate allocation to such funds can be risky in the long run,” said Swarup Anand Mohanty, Vice Chairman and CEO, Mirae Asset Investment Managers.

He expects a shift towards balanced allocations such as in flexi-cap funds, large cap funds.

When asked about the outlook on the inflows into the small-cap funds, Chalasani, said with the markets touching new highs, the flows will continue into such equity schemes.

In March 2024, net inflows into equity-oriented schemes declined by 16 per cent to Rs 22,633.15 crore compared to Rs 26,865.78 crore in February. Despite reduction, March was the 37th consecutive month of positive net inflows into equity schemes, starting March 2021.

In the January-march 2024 quarter, net inflows into equity mutual funds grew by 36 per cent quarter-on-quarter to Rs 71,279.49 crore, driven by a rally in the stock market. While the Sensex rose by 2 per cent, the NSE’S Nifty 50 climbed around 3 per cent in Q4 FY24.

The recent surge in the Sensex and Nifty has been mainly on account of higher inflows from domestic institutional investors (DIIS) that have bought stocks worth Rs 1.12 lakh crore since January this year. In the fiscal ended March 31, 2024, net inflows into equity schemes rose by 26 per cent to Rs 1.84 lakh crore as against Rs 1.47 lakh crore.

For FY24, the net asset under management (AUM) of the mutual fund industry grew by Rs 14 lakh crore or 35 per cent to Rs 53.4 lakh crore as against Rs 39.4 lakh crore in FY23.

In March, the amount collected through the systematic investment plan (SIP) route stood at Rs 19,270.96 crore, a record high, as compared to Rs 19,186.58 crore in the previous month. In March, the number of new SIPS registered were 42,87,117. The number of SIP accounts stood at the highest ever 8,39,71,299 in March 2024 as compared to 8,20,17,700 in February 2024.

Among the equity schemes, net inflows into large-cap funds were Rs 2,127.79 crore and into mid-cap was Rs 1,017.69 crore in the last month of FY24. Sectoral/ thematic equity schemes received that highest inflows of Rs 7,917.72 crore.

In March, debt-oriented schemes saw outflows of Rs 1.98 lakh crore, which resulted in a month-on-month decline in the net AUM of the industry. Outflows from such schemes was due to the advance tax payment requirement of corporates.

“This (outflows from debt mutual funds) is the phenomenon observed in the quarter end and more especially in the year-end,” Chalasani said.

Among the debt mutual fund schemes, outflows from liquid funds stood at Rs 1.58 lakh crore; ultra short duration funds at Rs 9,134.95 crore; and money market funds at Rs 8,719.75 crore.

Inflows into hybrid funds decreased to Rs 5,583.62 crore in March compared to Rs 18,105.08 crore in February.