Equity assets zoom, despite fall in industry AUM

Investors continue to pour in equity funds despite flat markets in June. AMFI’s latest data shows that the mutual fund industry witnessed net inflow of close to Rs16,000 crore in June. The AUM of equity funds in fact reached Rs7.50 lakh crore.

The monthly AUM of the overall mutual fund industry, though, fell for the second consecutive month.

In June, pure equity funds received net inflow of Rs6,900 crore. The good news is that a predominant share of the flow has come in pure equity funds (not arbitrage), say fund officials. “Arbitrage funds have not received inflows in June due to unattractive spreads,” says a senior official from a large fund house.

The growth in equity assets is largely due to SIPs. “The industry received Rs4,500 crore through SIPs in June. Nearly 99% of these SIP inflows is in equity category. Many investors are looking at equity funds as a long-term asset class, which can help them fetch better returns,” the official said.

However, the net inflow in June is less than in May, when the industry received close to Rs10,208 crore. “In May, we have seen a correction in the mid-cap space. Investors have become little cautious and hence some of them are converting their lump-sum investment to STPs. This may be the one reason behind the decrease in equity inflows, says Anand Shah, Deputy CEO and Head of Investments, BNP Paribas Mutual Fund”

Balanced funds have been gaining traction among investors as investors seek returns like pure equity funds with lower risk. The category witnessed inflow of Rs7,500 crore. Experts say that many HNIs have started putting money in balanced advantage funds as the market is at a peak. 

“Investors have become less aggressive in allocation towards equities; they are shifting their investment to balanced funds,” Anand added.

Rajesh Patwardhan, CIO, LIC MF, said that many large investors are putting money in balanced advantage funds, equity savings funds and equity income funds instead of arbitrage funds.

“If we compare Nifty returns with that of CRISIL Balanced Index, we see that the returns are nearly the same. The volatility of Nifty is much higher than volatility in balanced funds. This shows that for a lower risk, you get the same return,” says Alok Agarwal, Fund Manager-Equity, DHFL Pramerica Mutual Fund.

All equity funds witnessed increase in its assets. The asset under all equity funds, which include pure equity funds, balanced, ELSS, equity ETFs, was at Rs7.5 lakh crore. It increased by 2.7% growth in assets on account of market gains.

Overall, the AUM of the MF industry declined to Rs18.96 lakh crore in June, from Rs19.04 lakh crore. The AUM fell marginally, by 0.40% or Rs7,684 crore, during the month, mainly due to the net outflows in debt funds. The outflows in the income, liquid and gilt funds led to a fall in the assets of debt funds.

Experts say that corporate and institutions generally redeem their investments at the end of a quarter from the debt funds to pay advance tax. However, they say that equity assets or the long-term assets signify the overall sentiment of investors.

Monthly inflows/outflows and AUM as on June 2017

Source: AMFI