SIP and safe: Equity MF inflows strong despite market turmoil in May

Systematic investment plans help garner flows of Rs 12,286 crore in May, up Rs 423 crore in April.

The turbulence in the market has had little impact on investor flows into equity-oriented schemes, going by the evidence. In May, equity funds witnessed net inflows of Rs 18,529 crore—the fifteenth straight month of positive flows. They were higher than the 12-month average of Rs 15,442 crore despite a ban on new fund offers (NFOs).

Last month, the domestic markets saw a sharp sell-off due to sustained outflows from foreign portfolio investors (FPIs) as inflation, the disruption caused by the Russia-Ukraine war, and lockdowns in China triggered risk-off bets.

“Gone are the days when investors would redeem the money as markets corrected. In fact, we are witnessing a trend wherein investors have continued to invest more when there is a correction in the market. They are confident that the Indian growth story is intact and markets will turn positive once the dust settles,” said a senior industry official.

All equity fund sub-categories saw net inflows. Flexi-cap, large-cap, thematic, and large-and-mid-cap funds, recorded net flows of over Rs 2,000 crore each, shows data provided by the Association of Mutual Funds in India (Amfi).

“Retail investors continued to place their confidence in equity-oriented funds, making opportunistic use of the correction. Relatively lower returns from traditional investments have also led to an increased interest in equity markets,” said Kavita Krishnan, senior analyst – manager research, Morningstar India.

The benchmark Sensex fell 2.62 per cent in May, while the BSE MidCap and BSE SmallCap indices declined 5.22 per cent and 7.83 per cent, respectively, as FPIs pulled out nearly Rs 40,000 crore from domestic stocks.

Strong inflows into the equity segment were underpinned by systematic investment plans (SIPs). The SIP route helped garner flows of Rs 12,286 crore in May, up Rs 423 crore compared to April. The number of SIP accounts rose to a fresh all-time high of 54.8 million, up from 53.9 million the previous month.

“Consistent SIP flows are supporting the net positive sales numbers in equities. Through the ongoing volatility, we see continued interest from retail investors to allocate to equity MFs. The spread of new flows is well diversified across categories. The dynamic and balanced advantage fund category also continued to be positive and this is very good for retail investors in managing risks and volatility,” said Akhil Chaturvedi, chief business officer, Motilal Oswal AMC.

Hybrid and passive schemes also saw net inflows of Rs 5,123 crore and Rs 12,229 crore, respectively, in May. However, debt funds saw net outflows of Rs 32,722.25 crore, led by outflows from money market funds, ultra-short-duration funds, and low-duration funds, among others.

Industry players said the outflows from debt MFs came on the back of rising yields in anticipation of further rate tightening by the Reserve Bank of India (RBI). Earlier this week, the yield on the 10-year government security topped 7.5 per cent for the first time in three years.

Overall, the MF industry saw net outflows of Rs 7,533 crore, while average net assets under management (AUM) of the industry stood at Rs 37.4 trillion, down from Rs 38.9 trillion at the end of April.