Market watch – Inflows in equity funds see record annual rise and monthly fall in March

The Indian mutual funds industry, populated by 66.48 million accounts, of which 99.4% are individual investors, can tell a lot about investor sentiments.

According to data from the Association of Mutual Funds in India (AMFI), the total of net monthly inflows for FY2018 saw a 20.8% decline at Rs 2.72 lakh crore, compared with Rs 3.43 lakh crore, at the end of FY2017.

What is interesting is the contrast that the net inflows in equity mutual funds show. At Rs 1.57 lakh crore, for FY2018, the net inflows in equity are over 160% higher than Rs 60,270 crore amassed in FY2017. Interestingly, FY2017 was not so exciting for equity as the industry saw inflows in equity funds fall by 10.9%.

However, the contrast becomes glaring when we see the Rs 2,954 crore on net inflow in equity funds in March 2018 - which is the lowest compared to all the other months of FY2018. This petty mop-up was nearly 80% lower than Rs 14,683 crore which came into equity funds in February. The March inflow is 77.4% lower than the average inflow of Rs 13,063 crore across the twelve months of FY2018.

The big difference in March 2018 was the comeback of long term capital gain tax (LTCG) apart from the volatility in the stock markets across the globe. The key equtiy indices; Nifty 50, Nifty 500, S&P BSE Sensex, and S&P BSE 500 saw a monthly fall of 3.61%, 3.78%, 3.56% and 3.71% each in March 2018.

Interestingly, investments in equity linked saving schemes (ELSS) - which offer tax benefits - have been on a roll. While FY2017 saw an annual 57.4% increase (from Rs 6,413 crore in FY2016) at Rs 10,097 crore. The Rs 14,316 crore inflows in FY2018 was 41.8% higher growth compared to FY2017.

There too, the contrast was seen on the monthly mop-up. At Rs 3,703 crore, the net inflow in March 2018 was highest across the twelve months, and 133.6% more than Rs 1,585 crore in February 2018.

Income funds and balance funds which account for sizeable portion of assets under management also saw major swings. While income funds saw an annual 718.5% growth in FY2017, from Rs 14,738 crore in FY2017, to Rs 1.20 lakh crore in FY2017. In FY2018, they saw a net outflow of Rs 5.851 crore.

Balanced funds have been seeing a constant growth in the last three fiscals. Their net inflows grew by 85.4% from Rs 19,743 crore in FY2016 to Rs 36,610 crore in FY2017. And, FY2018 saw a 145.2% growth at Rs 89,757 crore.

The rise of balanced funds needs no deep introspection to conclude that investors are increasingly being cautious and playing debt and equity in tandem.