Inflows in equity mutual funds dropped to a 10-month low level at Rs 6,120 crore in August on account of investors taking cautious approach and temporarily shifting of money from equity to debt due the rising interest rate scenario.
This was the 18th straight month of inflows in equity mutual funds (MFs) but the pace of inflow has been declining over the past few months.
The net inflows in August were lower compared to Rs 8,898 crore in July, Rs 15,495 crore seen in June, Rs 18,529 crore in May and Rs 15,890 crore in April, according to data released by Association of Mutual Funds in India (Amfi) on Friday.
The month of August saw the lowest level of inflow since October 2021, when equity mutual funds had attracted Rs 5,215 crore.
Equity schemes have been witnessing net inflow since March 2021. These schemes had witnessed outflows for eight months from July 2020 to February 2021, losing Rs 46,791 crore.
Priya Agrawal, Money Coach, LXME, attributed the lower inflow to investors taking cautious approach this month and money is temporarily shifting from equity to debt considering the rising interest rate scenario.
"Equity MF inflows, while positive, have moderated in recent months. There is usually a psychological tendency amongst domestic investors to book profits near all-time highs (especially when the markets have corrected post hitting similar levels in the recent past), which is also getting reflected in the lower quantum of inflows," Arun Kumar, Head of Research, FundsIndia, said.
The fall in inflows in equities could be attributed to the sharp upmove in the equity market, as investors become wary of the higher valuation, Sanjiv Bajaj, Jt Chairman and MD, Bajaj Capital said.
While MF equity flows have moderated, foreign portfolio investor flows have revived and supported equity markets.
Within the equity funds, Flexi-Cap funds, large and Mid-Cap, Mid-Cap and Small Cap funds witnessed the largest inflows.
In addition, multiple funds were launched during the month, given capital markets regulator Sebi's lift on the ban around this.
Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India, said that equity MFs saw inflow although at a lower pace.
"FPIs inflows continued to remain positive for the second month as Indian markets continued to maintain a positive trajectory. Investors likely draw comfort from broader expectations around the easing of the interest rate cycle. This is based on an overall consensus around the peaking of inflation rates and the confidence in Indian markets, characterised by higher earnings multiple," she added.
The monthly SIP (systematic investment plan) contribution touched an all-time high of Rs 12,693 crore in August and the number of SIP accounts too rose to an all-time high at 5.71 crore crossing the June high of 5.61 crore.
Further, mutual fund folios crossed all-time high at 13.64 crore and retail MF folios too touched record high at 10.89 crore.
"Monthly SIP Contribution, SIP AUM, SIP Folios, Overall Mutual Fund Folios, and AUMs, all at an all-time high coupled with continued positive flows in most categories of mutual fund schemes, signify rising and informed investment preference towards Mutual Fund asset class. Investors continue to stay fully invested and also adhere to goal-based investing," N S Venkatesh, Chief Executive, Amfi said.
Further, retail participation as a share of overall MF industry AUM at more than 50 per cent signifies continued interest in the mutual fund asset class, he added.
Apart from equity, debt mutual funds witnessed an inflow of Rs 49,164 crore last month, much higher than Rs 4,930 crore seen in July.
"This net inflow could be because of the rising interest rates and uncertainty related to further rate hikes, and the investors are parking their surplus funds in this category for the short term while maintaining liquidity," Agrawal said.
On the debt schemes, investors are preferring liquid funds over interest rate sensitive fixed income schemes, owing to RBI's policy to contain inflation and hence tighten liquidity. Flows will come into debt schemes once RBI revises its stance to accommodative.
However, hybrid schemes saw a net withdrawal of Rs 6,601 crore and Gold Exchange Traded Funds (ETFs) experienced a net outflow of Rs 38 crore.
Overall, the mutual fund industry registered a net inflow of Rs 65,077 crore in August compared to Rs 23,605 crore in July.
The inflow pushed the Assets Under Management (AUM) of the industry to rise to Rs 39.34 lakh crore at the end of August from Rs 37.75 lakh crore at the end of July.