One year of demonetisation: MF industry receives net inflows of Rs.3.30 lakh crore

One of the expectations from demonetisation was ‘financialisation of savings’. This expectation has been met as demonetisation (along with buoyant markets and good performance of equity funds) has helped the MF industry attract huge inflows.

Post demonetisation, the mutual fund industry has received net inflows of Rs.3.30 lakh crore between November 2016 and October 2017.  The MF industry received net inflows of Rs.1.86 lakh in November-October 2016 indicating a whopping growth of 77% or Rs.1.44 lakh crore in net inflows.

The good news for the industry is healthy inflows in equity funds. The industry has received Rs.2.37 lakh crore in November-October 2017 as against Rs.80,000 crore in November-October 2016, a growth of 195% or Rs.1.57 lakh crore. We have included pure equity funds, balanced funds, ELSS and ETFs in equity funds.

Among equity funds, the industry has seen the highest growth of 229% in balanced funds. Net inflows in these funds has increased from Rs.22,615 crore in November-October 2016 to Rs.74,339 crore in November-October 2017.

Milind Barve, Managing Director, HDFC Mutual Fund believes the demonetisation has given a fillip to the mutual fund industry. “Many people who had deposited money post demonetisation realized that their idle money could earn better returns. These investors have invested in equity funds for better risk adjusted returns. If you look at the data, you will find that net inflows in equity funds have been gradually increasing month on month. In my view, we will see more inflows in days to come.”

Seconding Barve’s view, Suresh Soni, CEO, DHFL Pramerica Mutual Fund said, “Fortunately, demonetisation had come at a time when credit growth was muted and returns from physical asset such as gold and real estate was not attractive. As a result, many people have started moving from physical assets to financial assets and mutual funds are one of the beneficiaries of this shift. While demonetisation has helped accelerate inflows, healthy net inflows is largely due to good performance of equity funds.”

However, the demonetisation exercise did not help debt funds. AMFI data shows that the MF industry has received Rs.92,914 crore in November-October 2017 as against Rs.1.07 lakh crore in the corresponding period last year. We have included income funds, liquid funds and gilt funds in debt category.

If we exclude liquid funds and gilt funds as these funds cannot compete with bank FDs, the net inflows in income funds was at Rs.46,644 in November-October 2017 as against Rs.1.28 lakh crore in November-October 2016, a decline of Rs.82,300.

A CIO of a foreign fund house who did not want to be quoted said that bulk of debt money has gone to arbitrage funds due to recent market volatility and favourable tax treatment. Demonization has accelerated this trend, he added.

Lakshmi Iyer, CIO-Debt and Head Products attributed this decline to outflows from bond funds. “Dynamic bond funds have witnessed outflows as many investors have redeemed their debt investments on completion of three year to avail indexation benefits under long term capital gain tax. In addition, the money which used to come to bond funds has been moving to equity savings funds that offer tax benefits. However, credit funds have received good traction from investors. These funds invest in corporate bonds with maturity between 1 and 2 years indicating less volatility. These funds have delivered better risk adjusted returns in the past. In fact, these funds are better alternative to bank FDs; however, investors should keep in mind the risk associated with such funds,” said Lakshmi.

Net inflows in mutual funds post demonetisation

Source: AMFI monthly disclosure