Positive net inflows in equity funds but…

Despite volatility, the industry has seen positive net inflows in equity funds so far this year.

However, if you look at the AMFI monthly data closely, you will find that the pace of growth in net inflows has declined substantially compared to last year. The data shows that equity funds have mopped up net inflows of Rs.72,500 crore in April-September 2018 compared to Rs.1.08 lakh crore in the corresponding period last year, a decline of 33% or by Rs.35,300 crore.

While net inflows in pure equity funds and ELSS largely remained flat compared to last year, net inflows in balanced funds declined substantially. The category saw net inflows of Rs.11,300 crore in April-September 2018 as against Rs.47,000 crore in April-September 2017, a massive decline of Rs.36,000 crore in net inflows.

Vinod Jain of Jain Investments attribute this to introduction of dividend distribution tax in equity funds. “Balanced funds were popular amongst HNIs for tax-free dividends and better risk adjusted returns. However, in the last one-year, balanced funds have lost their sheen due to introduction of DDT in equity funds and volatility in the markets.”

Pune IFA Amit Bivalkar also echoes Vinod's view and said, "Balanced funds used to declare monthly or quarterly dividends regularly. However, fund houses have reduced frequency and quantum of such dividends due to volatility in the markets. In addition, DDT further reduces the dividend in hand.”

Bivalkar also feels that currently both equity and debt markets are facing headwinds. As balance category invests in both these asset classes, the performance has suffered from the negatives of both the assets. This dip in performance is keeping investors away, he said.

Gajendra Kothari of Etica Wealth pointed out that many investors have moved to conservative hybrid funds post SEBI recategorisation of mutual funds. “Many investors who were in balanced funds have moved to conservative hybrid fund to reduce risks which come under debt fund for taxation.”

Equity Net flows (Rs. crore)

Source: AMFI

The mood in SIP flows too was relatively sombre. While the SIP flows continue to be robust, the pace of growth seems to have slackened. While April-September 2017 saw consistent growth in incremental SIP flows, new SIP registration in April-September 2018 has not been encouraging.

Jain said that investors who started SIP in the last three years have been disappointed with the returns. “While SIP is a long term product, good returns in the initial years gives investors’ confidence to stay invested longer. However, we need to focus on the fact that overall SIP flows continue to be positive,” he added.

Seconding Vinod, Gajendra said that many new clients who have seen negative one-year SIP returns now want to take a slow and steady approach. In fact, he has observed a marginal dip in the quantity of investments enquiries.

According to Amit, some advisors have entered the MF industry post 2008 crisis. As this is their first major market turmoil, it is likely that they lack the experience in handling jittery investors. So, they may not have been able to convince them to continue investing in the SIP, he added.

SIP Flows (Rs. crore)

Source: AMFI