Frenetic withdrawals by mutual fund investors in August to reap the gains of a stock market surge amid economic uncertainty drove net outflows from equity schemes to the highest in a decade, data released on Wednesday showed.
Net outflows from equity MFs rose to Rs 4,028.83 crore in August from Rs 3,845.41 crore in July, according to the Association of Mutual Funds in India (AMFI). The previous highest monthly outflow was Rs 7,281 crore in September 2010.
The net outflows came on the back of redemptions in equity schemes of Rs 18,557.82 crore, up from Rs 16,622.01 crore in July. Contribution from systematic investment plans (SIP) also fell to Rs 7,791.63 crore, from Rs 7,830.66 crore in July, something analysts attributed to profit-booking as well as ongoing economic uncertainty due to pandemic.
“Over the last two or three months, investors have continued to book profits from equity mutual funds. It also appears that some investors have taken a tactical asset allocation call, by moving from equity to low-duration or ultra short-term funds, with the objective of re-entering equity funds at lower levels in the event of a correction in the markets,” G Pradeepkumar CEO, Union Asset Management Company said.
All categories of equity funds saw outflows; Large-cap funds saw the highest net outflows of Rs 1,553.50 crore, followed by multi-cap funds (Rs 1,157.21 crore), mid-cap funds (Rs 602.98 crore) and small-cap funds (Rs 104.39 crore).
“We have also seen in the past that after a fall in the market, post-recovery, we generally see outflows. This is also a function of the uncertain environment where the markets recovered significantly, but we are still seeing significant negative data both on the virus and the economy,” said Santosh Kumar Singh, head of research, Motilal Oswal Asset Management Co.
According to analysts, the continuing outflows indicates that more investors are choosing to book profits given the surge in equity markets. Meanwhile, equities are losing domestic institutional support, with domestic institutional investors (DIIs) selling Rs 11,727.66 crore in August — their highest sell-off since March 2019 — while benchmark indices rose nearly 3%.
Debt funds saw outflows as well. Net outflows in overnight funds and liquid funds were Rs 10,298.03 crore and Rs 15,814.01 crore, respectively, while credit risk funds saw net outflows of Rs 554.14 crore.
“On the debt side, there are two points to note. There are negative flows in overnight and liquid funds, but large positive flows in categories like money market indicate that people are moving into slightly longer duration categories to capture higher yields,” said Kaustubh Belapurkar, director, fund research at Morningstar Advisor India.
The introduction of stamp duty of 0.005% on mutual fund purchases too made investment in mutual funds for very short periods relatively less attractive, //said Belapurkar?//. The duty has a larger impact relative to returns over periods of 30 days or less. “Also, there was possibly opportunistic money going into gilt funds over the past few months in anticipation of further rate cuts. However, a spike in inflation and a lower chance of these cuts happening and most likely led to outflows there,” Belapurkar added.
Gilt funds saw a net outflow of Rs 1,122 crore. Gold ETFs, however, saw an inflow of Rs 908 crore, similar to Rs 921 crore seen in July. Belapurkar attributed this to increased awareness among investors about asset allocation.