India's equity markets have been quite volatile over the last couple of months and have corrected from their record highs they had touched in September, following large outflows from foreign institutional investors. That volatility and uncertain near-term outlook seems to have made mutual fund investors nervous and they seem to have taken a cautious approach when it comes to equity investing.
According to latest data from Association of Mutual Funds of India (AMFI), equity mutual fund saw inflows of Rs 35,943.49 crore in November, a 14 per cent decline from the inflows of Rs 41,886.69 crore in October. Although, equity inflows have seen a drop, it was still the 45th month of positive equity inflows, starting from March 2021.
"The impact of equity market volatility in October spilled over in November mutual fund investment sentiments," pointed Mayukh Datta, chief business officer at ITI Mutual Fund.
Sectoral and thematic funds saw a sharp drop in inflows last month, the AMFI data showed. In November, the funds that invest in specific sectors and themes saw inflows of Rs 7,657.75 crore, down more than 37 per cent from October inflows of Rs 12,278.78 crore. Large cap funds also inflows decline in November.
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Datta pointed that in November there were 18 new fund offers (NFO) collecting Rs 4,052 crore, while in October there had been 29 NFOs collecting Rs 6,078 crores.
Other schemes, which includes index funds and ETFs (excchange traded funds), too saw inflows drop near 70 per cent to Rs 7,061.31 crore from Rs 23,428.31 crore in October. Outflows in arbitrage funds also led to drop inflows in hybrid schemes. Notably, midcap and smallcap schemes continued to see inflows rise in November.
Investing in mutual funds via systematic investment plans (SIPs) had surged in a big way over the last couple of years. But that too seems to have entered the slow lane. November SIP contributions were at Rs 25,319.66 crore, marginally lower than the Rs 25,322.74 crore in October.
"Escalating geopolitical tension, state elections in India, US presidential elections and FII sell-off led to enhanced volatility in the markets. This coupled with a high inflation numbers and Subdued GDP data instilled a scenario of uncertainty over the commencement of interest rate cut in India. Investors would have thought to get more clarity on these aspects before infusing more investments," said Himanshu Srivastava, associate director - manager research, Morningstar Investment Research India.
The total mutual fund folios in November were at an all-time high of 22.08 crore. Retail mutual fund folios were also at an all time high of over 17.54 crore..
Debt mutual funds too saw inflows fall sharply to Rs 12,915.90 crore from Rs 1.57 lakh crore in October. The fall in debt fund flows was largely due to Rs 1,778.98 crore in outflows from liquid funds in November. Liquid funds had received inflows of Rs 83,863 crore. Overnight funds too saw inflows fall sharply to Rs 2,019.34 crore in November from Rs 25,783.59 crore in October.
