Stock rush worries investors; lump sum flows into equity MFs slow down

Stock rush worries investors; lump sum flows into equity MFs slow down

Comparing May with the previous month, lump-sum flows into mutual fund equity schemes have comparatively slowed down. Following the unexpected rally in the market, investors are now keeping themselves to the sideline. Even in debt schemes, investors prefer the safer categories, such as banking, PSU debt funds, and other categories that are liquid. This is more so the case after the Franklin Templeton episode dashed the appetite for products with higher returns in the market. 

As per data, equity scheme lump sum flows fell from INR 6,123 crores in April to INR 5,256 crores in May. 

Moreover, with the lockdown severely affecting businesses, and also impacting jobs on a large scale, many individuals are, at least for now, postponing their fresh purchases. Before committing lump sum amounts to equity, they want to get some clarity concerning their future first with respect to cash flows during the pandemic. The investors who had put their money into equity schemes in May had also preferred large-cap and multi-cap funds, which totaled to about half of the lump sum flows for the month. 

Arbitrage funds, which are considered to be safer, saw flows worth INR 10,806 crores as against the INR 6587 crores of the previous month. HNIs also chose to increase their allocation to gold, by purchasing gold ETFs worth INR 815 crores in May 2020. Hybrid funds and similar categories saw outflows of INR 978 crores. 

SIP flows fall for a second month

Inflows into MFs through SIPs have come down for the second month in a row. The inflows have fallen by INR 253 crores to stand at just INR 8,123 crores now, while in March, they were INR 8,646 crores. Salary cuts, uncertain market outlooks, and job losses have prompted investors to stop their SIPs altogether or to reduce the amount that they were investing every month. Thus, while few closed their SIPs due to a loss of jobs, others decided to time the market, but have closed them for now, since they feel that the future is negative for now. 

However, financial planners have advised investors not to discontinue their SIPs since a market fall will eventually help them to accumulate more funds. 

Investors choose to stick to safer categories

Flows into debt mutual funds have also risen to INR 63,665 crores in May, from just INR 43,431 crores in April. While credit risk funds witnessed outflows in May, they slowed down during this month. After Franklin Templeton shut down six of its debt mutual fund schemes and stopped redemptions indefinitely, the category saw outflows worth INR 19,239 crores.

The money market has seen an inflow of INR 2,040 crores, while the banking sector saw an inflow of INR 8,873 crores and gilts of INR 1947 crores. However, overnight funds, which are considered to be the safest among debt schemes, saw an outflow of INR 15,880 crores as a result of their falling returns. Currently, these are returning only 2-3% annually.