The mutual fund industry has something to cheer about. Along with higher net inflows and good performance of equity funds, the volume of inflows likely to remain invested for a longer time, or the stickiness factor, has also increased.
To calculate the net inflows that are likely to remain invested for the longer term, we have excluded the net inflows to arbitrage funds from the total equity inflows as largely corporates/HNIs invest in arbitrage funds for tax purposes. Equity funds include equity, arbitrage, ELSS and balanced schemes.
Of the total Rs.2.60 lakh crore of equity inflows in FY 2017-18, Rs.2.40 lakh crore or 92% came from equity funds excluding arbitrage funds, shows AMFI data. In the preceding financial year, the total net inflows in other-than-arbitrage equity funds constituted 87% of the total equity inflows, or Rs.93,502 crore. The total equity net inflow was Rs.1.06 lakh crore in FY 2016-17.
AMFI data also shows that the proportion of gross sales of equity funds other than arbitrage funds also increased last fiscal. The gross sales were of Rs.4.29 lakh crore in FY 2017-18 while they were of Rs.2.10 crore in the preceding fiscal year. This indicates that the proportion of retail money coming in equity funds increased last fiscal. The net inflows in retail-oriented funds witnessed a healthy 157% increase in FY 2017-18.
Another reason could be outflows in arbitrage funds post introduction of dividend distribution tax in equity funds. Manoj Nagpal of Outlook Asia Capital believes, “With the dividend distribution tax and long-term taxation on equity funds coming into effect from April 2018, many entities have redeemed their investments from arbitrage funds. Also, the size of arbitrage funds have ballooned in the past months which have possibly affected the performance of these funds’”
In addition, arbitrage funds saw outflows of Rs.13,651 crore in March 2018, as corporates have to pay advance tax during fiscal year-end.
