Flight to safety: Equity, hybrid funds see outflows while debt funds witness inflows

Many equity fund categories as well as all hybrid fund categories saw considerable net outflows in July as investors redeemed their investments in these schemes amid uncertainty in the economy and markets. Meanwhile, safer debt fund categories such as liquid funds, short strategy debt funds, corporate bond funds and banking & PSU funds witnessed good inflows.

Equity funds witnessed net outflow worth Rs.2,480 crore in July while hybrid funds saw net outflow of Rs.7,300 crore. Debt funds, meanwhile, witnessed net inflow of Rs.91,373 crore in July.

Among equity funds, large cap funds witnessed the highest net outflow at Rs.1,033 crore, followed by Rs.579 crore net outflow in mid cap fund and nearly Rs.549 crore net outflow in value fund/contra funds. While all other equity funds also witnessed net outflows, ELSS and focussed funds turned out to be the outliers as they managed to clock net inflows of Rs.279 crore and Rs.534 crore, respectively.

Among hybrid funds, arbitrage funds and aggressive hybrid funds witnessed the highest net outflow at Rs.3,732 crore and Rs.2,196 crore, respectively.

In case of debt funds, only credit risk funds witnessed net outflow of Rs.670 crore while all other categories witnessed inflows. Liquid funds witnessed an inflow of Rs.14,055 crore, low duration Rs.14,219 crore and corporate bond funds Rs.11,910 crore.

Experts feel that the July numbers highlight the flight to safety trend in the industry.

Pradeep Kumar, CEO, Union MF feels that following the sharp recovery since March-end, investors are now expecting a correction in equity markets. This has prompted them to flock to high quality debt funds such as liquid funds, short duration debt funds, corporate bond funds and banking & PSU bond funds.

Swarup Mohanty, CEO, Mirae Asset MF believes that July numbers reflect a flight to safety.  He, however, cautioned against giving undue consideration to recent performance to invest in   fixed income funds.   

Swarup adds that some of the hybrid funds have witnessed considerable outflows as investors had the expectation that it would protect their portfolio in a downside but it did not turn out that way.

N S Venkatesh, CEO, AMFI said that the outflow in equity funds is largely because of profit booking by some HNIs. He assured that there is no “panic as such” among retail investors. In fact, the AMFI CEO said that investor confidence in the markets continues to be robust, going by the rising net fresh SIP registrations and overall mutual fund AAUMs increasing since the advent of the pandemic.

In July, the MF industry witnessed SIP inflows worth Rs 7,830 crore as against Rs 7,927 crore in June. In June, it went below Rs 8,000 crore for the first time since November 2018.

The total number of SIP folios saw an increase as it rose to 3.27 crore from 3.20 crore in June. The total SIP AUM stood at Rs 3.19 lakh as on July end.

Overall, the MF industry AAUM reached Rs 27.28 lakh crore in July.