June equity MF inflows drop 16% MoM to Rs 15,498 cr due to volatility

Inflows into equity-oriented mutual fund (MF) schemes moderated in June amid the sharp selloff seen in the stock prices due to worries of a global recession. Net inflows stood at Rs 15,498 crore, 18 per cent below the 2022 average of Rs 18,829 crore and 16 per cent below May’s tally of Rs 18,529 crore. However, sustained inflows into systematic investment plans (SIPs) endured for the 16th straight month.

On June 17, the market had dropped to its lowest level since May 2021 and several mid- and small-caps had slipped into bear market territory amid huge outflows from foreign portfolio investors (FPIs). Thanks to a recovery in the latter part of the month, the S&P BSE Sensex Index ended the month with a loss of 4.6 per cent, while S&P BSE Midcap Index and S&P BSE Smallcap Index fell 6.2 per cent and 6 per cent, respectively.

Industry players said sustained inflows despite corrections in the markets is a sign of maturity among investors.

In June, all equity fund sub-categories logged net inflows. Net flows of more than Rs 2,000 crore were seen in in flexicap and largecap categories.

Arun Kumar, head of research, Funds India says, “Despite significant FPIs selling over the last several months, the market impact has been reasonably contained thanks to the strong domestic institutional investors (DII) flows. Usually, whenever markets are volatile and one-year (rolling) returns turn lacklustre–as is happening now–DII flows tend to weaken. We need to keep a close watch on the equity MF inflows and SIP trend in the coming months as they are critical given the backdrop of strong FPI outflows.”

Inflows through SIPs stood at Rs 12,276 crore in June, slightly lower than Rs 12,286 crore seen in May.

The number of SIP accounts hit a fresh all-time high of 55.4 million. The assets under management (AUM) for SIPs stood at Rs 5.51 trillion.

Passive schemes also saw net inflows of Rs 13,110 crore, while hybrid funds saw net outflows of Rs 2,279 crore due to the high redemptions from arbitrage funds.

Debt funds saw outflows of Rs 92,248 crore. Typically, the last month of every quarter debt funds see huge outflows as institutions such as banks and corporates redeem their investments to pay for advance taxes.

Highest outflows were seen in overnight funds at Rs 20,668 crore followed by liquid funds and ultra short duration funds. Other shorter-end categories of funds like low duration funds, money market funds and short duration funds also saw sharp net outflows.

Kavitha Krishnan, senior analyst – manager research, Morningstar India says, “An uncertain macro environment, driven by expectations around an increasing rate cycle, higher commodity prices and slowdown in growth have likely led to investors steering clear of debt funds. Single digit returns, rising bond yields and the rising inflation have also likely led to investors choosing to redeem their investments in debt funds in favour of other investment avenues.”

Net outflows for the industry across all categories stood at Rs 69,853 crore and average AUM stood at Rs 36.98 trillion in June.

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