Why did equity mutual fund inflows drop by 22% in May?

Synopsis

Equity mutual funds experienced a dip in inflows during May, falling to ₹19,013 crore as investors turned cautious amid high stock valuations. Despite this, SIP investments reached a record ₹26,688 crore. Debt funds saw outflows, while hybrid funds, particularly arbitrage funds, gained traction. Overall AUM for the mutual fund industry increased, driven by market gains.

Mumbai: Investors booked some profits in equity mutual funds and held back from allocating fresh money in May in the wake of the rebound in the stock market. Flows into equity schemes dropped 22% to ₹19,013 crore in May from ₹24,269 crore in April.

"After a robust performance in the preceding months, elevated stock valuations prompted investors to take a cautious stance, resulting in a noticeable slowdown in equity inflows," says Viraj Gandhi, CEO, SAMCO Mutual Fund.

While lump-sum flows dried up, investors continued to put money in equity-oriented funds through monthly systematic investment plans (SIPs), with allocations hitting another all-time high of ₹26,688 crore. Debt funds saw outflows of ₹15,908 crore, compared with inflows of ₹2.19 lakh crore in April.

Led largely by mark-to-market gains in stocks, the mutual fund industry's average assets under management (AUM) rose 3.5% to ₹71.9 lakh crore, higher than ₹69.5 lakh crore in April. The Nifty rose 1.71% in May after gaining 5.03% in April. The SIP assets under management (AUM) surged to ₹14.6 lakh crore from ₹13.9 lakh crore.

In equity schemes, investors poured the highest money into flexi cap funds, allocating ₹3,841 crore, though lower than the previous month's ₹5,542 crore. Small-cap funds got ₹3,540 crore, lower than the previous month's ₹4,000 crore, while midcaps got ₹4,003 crore, higher than the previous month's ₹3,314 crore. Sectoral and thematic funds added ₹2,052 crore, marginally more than ₹2,001 crore in April, while large-cap funds collected ₹1,250 crore, far lower than May's ₹2,671 crore.

Agencies

While liquid and overnight funds saw outflows of ₹48,000 crore, corporate bond funds and money market funds saw inflows of ₹23,000 crore, as investors bet on a softer interest rate environment.

"Debt fund outflows of about ₹16,000 crore look tactical - likely driven by treasury cash-management around quarter-end and an RBI policy overhang - rather than a structural shift away from fixed income," says Anoop Vijaykumar, head of equity, Capitalmind MF.

Among hybrid funds, which attracted higher inflows than the equity mutual fund category, as much as three-fourths of the total inflows went into arbitrage funds. Of the total inflow of ₹20,765 crore in the hybrid category, ₹15,702 crore went into arbitrage funds, higher than the previous month's collection of ₹11,790 crore, where investors pour surplus money to earn tax-efficient returns in comparison to liquid funds.

Multi-asset allocation funds that invest in a mix of equity, debt, and gold received inflows of ₹2,927 crore, higher than the previous month's ₹2,106 crore. Categories like balanced advantage saw inflows of ₹1,136 crore.

After two months of profit booking in gold due to the sharp run-up, investors once again allocated money to the yellow metal, adding ₹292 crore in May, using a buy-on-dips strategy in the yellow metal.