Redemption pressure grows for large-cap funds as indices hit record highs

Redemption pressure grows for large-cap funds as indices hit record highs

Large-cap equity mutual fund schemes have become under severe redemption pressure over the prior two months even though benchmark equity indices are scaling new highs every different day. Gross purchases and gross sales ratio for this level of funds has remained between 0.45 and 0.47 for the prior two months. It is one of the lowest among major fund classes, the Economic Times mentioned in a copy repeating data from Association of Mutual Funds in India (AMFI).

The ratio for the category has continued to be below one for the seventh month in a series. It was 1.64 in mid-April 2019 and May 2020. While a ratio above one reflects a favorable opportunity of investors towards a particular fund level, a reading below 0.5 indicates rising cynicism. For equity MFs as a body, it was 0.72 in December, up 20 basis points from the prior month.

Experts say double-digit gains in the past year have advised investors to book values in large caps, and underperformance of large-cap funds to their benchmark indices coupled with rising interest of exchange-traded funds have also attached to the redemption assurance. The business daily said a sample of large-cap funds is more than Rs 1,000 crore assets under management (AUM) passed a record of 19.3% in the past year, underperforming some benchmarks by 1.2%.

A surge in the gross inflow of sectoral plants in December has pushed large-cap gross inflows to the second touch for the first time in 20 months. In December 2020, the sectoral funds had the highest total inflow of Rs 7,439 crore, which is over two times the large-cap inflow, the business daily considered.

On the other support, the large-cap funds reported the highest current of Rs 13,254 crore among all the fund classes in the past two months. The share of large-cap funds in the AUM of the equity mutual funds plummeted by 109 basis points to 19% in the last calendar year. Also, large-cap fund folios decreased by 94,036 in the past two months.