Why are investors getting disillusioned with equity mutual funds? Experts say this…
The latest AMFI (Association of Mutual Funds in India) data for the month of May shows that inflow into equity mutual funds fell 21.66 percent month-on-month to ₹ ₹19,013.12 crore. In April also, equity inflows dropped, albeit marginally by over 3 percent over preceding month.
Why are investors getting gradually disillusioned, or at least sceptical, with investing in equity? We asked some experts and this is what they had to offer.
There is a growing perception among investors that Indian equities are expensive and amid geopolitical tensions, there is a sense of scepticism as well. Additionally, there were other asset classes – short term debt and gold – which did well lately and investors pulled money from equities to invest in these assets, say experts we spoke to. Let us hear directly from them.
Investors’ scepticism
“The market cap to GDP ratio is 122 as of now, whereas it should be less than 115. The Sensex P/E ratio is also high at 23 whereas it should be in the range of 20. People are wary of investing in equity when short term debt and medium-term debt is providing double-digit return in the wake of RBI rate cut,” said Sridharan S., founder of Wealth Ladder Direct
Preeti Zende, founder of Apna Dhan Financial Services believes that retail investors had witnessed a sharp correction over the last 6 to 8 months after a fantastic bull run for the last four years. This situation made small investors sceptical about investing in equity mutual funds. She says that there could be multiple reasons for this. First reason is global uncertainties.
“Globally, due to the US tariff war and the escalation of the Russia-Ukraine war, things are very uncertain in near future. There is a fear of a global slowdown because of such things. This leads to fear of stagnation in economic growth and further correction in the market,” she says.
Second reason is change in investment sentiments. “When the equity market was correcting, gold and bond markets were performing better and delivering a good return. So, investors prefer safe havens like commodities and bonds for investment rather than riskier asset class like equity,” she adds. Additionally, there could be some sense of scepticism. “Even though the market has recovered recently, investors are not sure about how long it will last. That’s why they are a little bit cautious in the short term,” she adds.
SIP data
Meanwhile, SIP contribution for the month of May rose marginally to all-time high of ₹26,688 crore vis-à-vis ₹26,632 crore in April.
“Notably, investor confidence through Systematic Investment Plans (SIPs) remained resilient. Monthly SIP inflows edged up by 0.21% to a record high of ₹26,688 crore, compared to ₹26,632 crore in April. The SIP stoppage ratio also improved after several months. During May, 59 lakh SIP accounts were opened, while 43 lakh were stopped or matured, bringing the total number of SIP accounts to 9.06 crore,” says Viraj Gandhi, CEO, SAMCO Mutual Fund.
“Month-on -month data just like point-to-point returns will always reflect only half a picture. Inflows in the equity funds are already sitting on a high base if we compare from the last few years of data. Monthly SIPs of ~ ₹25,000 crore per month is becoming the new normal, which is a very good number,” says Abhishek Dev, Co-Founder and CEO of Epsilon Money.
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