Equity mutual fund inflows dip in April amid pre-election volatility, hybrid funds thrive
In April, net equity mutual fund inflows witnessed a decline to ₹18,888 crore from ₹22,576 crore in the previous month, as reported by the Association of Mutual Funds in India (AMFI).
Experts attribute this downturn to the prevailing high-pitched political environment.
Despite this overall trend, notable shifts were observed across various fund categories.
Small-cap funds experienced an inflow of ₹2,209 crore, contrasting sharply with the previous month’s outflow of ₹94 crore.
Mid-cap funds also saw healthy inflows, rising to ₹1,793 crore from ₹1,018 crore in March.
Conversely, large-cap funds experienced a decrease in inflows, settling at ₹358 crore compared to ₹2,128 crore in the previous month.
Hybrid funds emerged as a highlight, witnessing a substantial increase in inflows, reaching ₹19,863 crore compared to ₹5,584 crore in March.
In the liquid funds and exchange-traded funds (ETFs) categories, movements were mixed.
Liquid funds recorded a decrease in inflows to ₹1.03 lakh crore from ₹1.58 lakh crore in the previous month, while ETF inflows also declined to ₹5,747 crore from ₹10,560 crore.
Tax-saving equity mutual funds, or ELSS Funds, experienced a reversal in flows, moving from an inflow of ₹1,789 crore in March to an outflow of ₹144 crore in April. Additionally, credit risk funds saw a modest outflow of ₹359 crore compared to ₹321 crore in March.
In the debt segment, total inflows stood at ₹1.90 lakh crore, a slight decrease from the previous month’s outflow of ₹1.98 lakh crore.
DP Singh, Deputy Managing Director and Joint CEO at SBI MF, dismissed the notion that the decline in equity mutual fund inflows for April could be attributed to Know Your Customer (KYC) issues.
Around 1.3 crore mutual fund accounts currently face KYC compliance issues due to SEBI’s latest directive, which invalidates documents such as electricity bills, telephone bills, and bank account statements for KYC purposes.
However, this had no impact on mutual fund inflows.
Singh highlighted that in a highly charged political environment with increased market volatility, smart investors tend to exercise caution and prefer to stay on the sidelines.
Notably, institutional investors and high-net-worth individuals (HNIs) have shown reluctance to commit funds to large-cap funds during such periods, resulting in negative flows or reduced inflows.
Singh clarified that the outflow from large-cap funds differs from the inflow into mid-cap and small-cap funds, indicating distinct investor behavior.
He further pointed out a continuing rally in small-cap and mid-cap segments, driven by an influx of foreign investments previously concentrated in top Nifty stocks, which are now diversifying into mid-cap and small-cap segments.