MFs have weathered the volatility in markets well, says AMFI CEO NS Venkatesh

Despite a challenging FY 18-19, mutual funds saw inflows of close to Rs. 1.1 lakh crore, said AMFI CEO NS Venkatesh in a press conference today. Majority of these outflows were in the equity category.

Equity funds include pure equity, balanced and ELSS funds.

Analyzing AMFI numbers for the year, we observe five notable changes compared to FY 17-18

1. Equity fund flows have nearly halved: Venkatesh attributes the slower inflows to equity market volatility in the last financial year. Comparatively markets were on a roll and funds were clocking high returns in FY17-18. The correction in mid and small cap segment, market concerns over NBFC credit events and border tensions had a negative effect on flows in the last financial year. However, with equity market volatility subsiding and border tensions easing, the Sensex and Nifty recorded an uptick in March. The positive sentiment spilled over in equity fund flows too, with March 2019 (Rs. 8,575 crore), witnessing substantially higher equity flows compared to the previous two months. 
2. Balanced fund category showing signs of weakness: The category has shown lower interest after government introduced dividend transaction tax on equity funds as it became less attractive. The category reported inflows of Rs. 6,865 crore last fiscal compared to Rs. 89,757 crore the year before.
3. Outflows from debt funds ballooned: The credit event in September, tightness in liquidity, interest rate hikes by RBI in initial part of the financial year led to lower interest in debt funds. Debt funds reported outflows of Rs. 1.25 lakh crore in last financial year compared to outflow of Rs. 9,128 crore in the year before. However, Venkatesh believes that with the dovish stance by RBI coupled with reduction in repo rates by 50 bps, investors will re-look at the category. March 2019 saw debt funds receive inflows of Rs. 13,894 crore. Debt funds include income and gilt funds.
4. Liquid funds inflows increased substantially:  Liquid funds, which ended FY 17-18 in red saw net positive inflows of Rs. 76,093 crore in last fiscal. The volatility in debt markets may have helped this category. Venkatesh believes that this is largely institutional money. If the current liquidity stance (liquidity injections through OMOs and forex swaps) of RBI continues then liquid funds may see more inflows in the coming fiscal too; however, overall the category flows tend to be volatile.
5. ETF flows nearly doubled: The year has seen government try to achieve its disinvestment target through launch of many CPSE ETFs. This has led to the growth in the category in the last financial year. Moreover, the worries over alpha generation potential of active large cap funds after introduction of TRI benchmarks by SEBI were also positive for the category.

Overall, the industry inflows reduced from Rs. 2.72 lakh crore in FY 17-18 to Rs. 1.1 lakh crore in FY 18-19 on account of lower inflows in equity funds and higher outflows in debt category.

Net inflow and outflow

Source: AMFI

In the last month of the financial year, all categories of funds, barring balanced funds, liquid funds, gold ETF and arbitrage funds saw positive inflows. The outflows in liquid funds were periodical on account of year end. 

Overall, the industry saw outflow of Rs. 22,357 crore in March and the month end AUM stood at Rs. 23.79 lakh crore.

Monthend AUM March 2019

Source: AMFI