Budget 2020

equity mutual funds: NFOs gain big; fear of correction hits equity mutual fund inflows

Equity mutual funds saw net outflows for the sixth straight month in December, 2020. While all the equity mutual fund categories, except a few, saw outflows in December, NFOs kept going strong. The outflows are attributed to the profit booking by mutual fund investors as the indices continue to soar. However, the new fund offers across categories continued to get good inflows and revived total inflows worth Rs 9,039 crore.

Mutual fund experts believe that the fear of a correction is also driving the redemptions in equity mutual funds as the indices are hovering around at a all-time high. Some investors are also using the redemption proceeds to try their luck in direct stocks, say experts.

“The continuation of net outflows from equity funds could be attributed to profit booking/portfolio rebalancing as markets continue to touch new highs. In fact, the net outflow number would have been higher had it not been for the NFOs across multiple equity categories which collected Rs 7,600 crore. Moreover, while the gross purchase (new investments) was lower in December than the previous month; gross redemptions at Rs 36,220.28 crore were significantly higher than Rs 27,113.18 crores in November. This also suggests that investors looked to book profits given the higher market valuations,” says Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

According to AMFI data, a total of 14 schemes were launched in the market in the month of December, out of which 9 were equity oriented schemes. These schemes gathered funds worth Rs 7,586 crore in the last month. The one new debt fund mobilised funds worth Rs 548 crore. ETFs and FoFs investing overseas saw three new scheme launches and generated inflows worth Rs 497 crore. Hybrid category also saw one new launch and mobilised Rs 408 crore.

“Investors in mutual funds have been using this market rally as an opportunity to book profits. At the same time, there has been renewed interest in some of the recent NFO’s and existing open-ended schemes in last month which has aided bump up in gross sales of Rs 26,000 crore in Dec’20 as compared to Rs 14,000 crore in November, 2020,” says Akhil Chaturvedi, Associate Director & Head of Sales, Motilal Oswal AMC.

Since July, equity oriented mutual funds have witnessed a net outflow of Rs 33,003.81 crores. Outflows were witnessed across equity fund categories except for Dividend Yield and Sectoral/Thematic Funds categories, given both these categories saw the launch of new funds. These NFOs collected assets worth Rs 6,312 crores.

Experts believe that many investors are putting the redemptions from equity funds to use in direct stock where they see more opportunity. “Re-allocation of large part of these redemptions would be in direct equities where the experience of investors have been good in recent past, alongside demand for IPO’s and real estate would also have sucked up the liquidity,” says Akhil Chaturvedi.