Over the past seven-eight months, stock markets have been quite volatile and that has weighed on investor sentiments. While they continue to invest in equity, investors are reducing their equity fund allocations booking profit amid the recent rally, while some of the flow may have also been moved to hybrid funds to tide over the volatility, latest data from the Association of Mutual Funds of India shows.
According to AMFI, net inflows into equity mutual fund schemes declined 22 per cent in May to Rs 19,013 crore, their lowest level in the past year, compared with Rs 24,269 crore in April.
Large-cap, flexi-cap and value-oriented mutual fund schemes in particular saw investor flows reduce last month. In comparison, hybrid schemes (where a scheme invests in a mix of equity and debt) saw inflows rise to Rs 20,765 crore from Rs 14,248 crore. This rise in hybrid fund flows was particularly driven by arbitrage funds, which saw inflows of Rs 15,702 crore in May, up from Rs 11,790 crore in April.
The moderation in equity flows was a reflection of cautious investor sentiment amid market volatility, opined Venkat Chalsani, chief executive of AMFI.
“Such phases often witness a natural reallocation towards hybrid and arbitrage schemes, offering a more balanced approach during uncertain times,” he said.
Some profit booking post the market recovery as well as worries about heightened geopolitical tensions (India had launched Operation Sindoor in May) could have also played a part in the moderation in flows, said analysts. In the past three months, the BSE Sensex has regained around 11 per cent.
“The broader slowdown in equity inflows can be attributed to a mix of factors: a less buoyant equity market in May compared to April, concerns around global economic headwinds and a possible profit booking in domestic equities following sharp rallies in the previous months and stretched valuations. Also, heightened global volatility – stemming from geopolitical tensions with India launching Operation Sindoor against Pakistan and concerns around global inflation, contributed to a risk-off sentiment among some investors,” said Himanshu Srivastava, associate director – manager research, Morningstar Investment Research India.
He pointed to the sharp increase in redemptions to Rs 37,591 crore in May from Rs 32,479 crore in April, which indicated many investors chose to capitalise on recent market gains.
Over the last four-five years, there has been a steady increase in people investing in mutual funds via SIPs (systematic investment plans) and that trend has continued in May too. SIP contributions in May stood at Rs 26,688.22 crore.
Overall, the net assets under management of the mutual fund industry have now reached Rs 72.19 lakh crore in May from Rs 69.99 lakh crore in
