Flows into equity mutual funds hit 14-month high as D-street rally draws investors

Flows into equity mutual funds soared to a 14-month high in May as the renewed strength in the stock market prompted investors to pump more money into equity products. Investors poured ₹10,083 crore into equity schemes, the third straight month of inflows, but pulled money out of debt schemes, which have been out of flavour because of lower returns.

Total assets under management of the mutual fund industry inched up to ₹32.99 lakh crore from ₹32.42 lakh crore.

Flow into equity schemes in May is the highest since March 2020, when they received Rs 11,722 crore. Since then, flows have been receding with the equity fund category witnessing outflows between July and February as many retail investors preferred to buy shares themselves instead of allocating their money to fund managers.

“So far, we have seen only tactical money flowing into mutual funds because of the broad-based rally. As the rally becomes selective going ahead, many investors are likely to participate through mutual funds than direct equity as fund managers use a professional approach,” said DP Singh, chief business officer, SBI Mutual Fund.

Monthly flows through systematic investment plans (SIPs) rose to ₹8,818.90 crore compared to ₹8,596 core in the previous month.

The multi-cap fund category saw the highest inflows of ₹1,954 crore led by a New Fund Offer launch by Aditya Birla Mutual Fund. Midcap, small cap, sectoral and focused funds too witnessed investor interest, while tax saving ELSS funds saw outflows as investors redeemed after the three-year lock-in.

Low-cost index funds, which are getting popular as active funds struggle to beat their benchmarks, saw inflows of ₹1,240 crore, while international funds garnered ₹2,424 crore, thanks to a couple of NFOs. Arbitrage funds saw flows of ₹4,520 crore. This product category is increasingly being seen as a substitute for liquid and ultra-short-term funds because of lower taxes.
Dynamic asset allocation funds, which allocate to equities based on market valuations, also saw flows of ₹1,363 crore as investors with low-risk appetite or first-time investors parked lump sum money here.

In the fixed income space, bulk of the money was redeemed from overnight and liquid funds. Debt funds lost ₹4,4512 crore in May.

“Corporates and businesses chose to pull out their short-term money parked in these funds for their business activities,” says Himanshu Srivastava, associate director – Manager Research, Morningstar India.

Some investors with a stronger risk appetite have started allocating to the credit risk fund and medium duration funds.