The dream run of mutual funds (MFs) continued in October with the stock markets hitting new record highs. Last month, equity schemes saw net inflows of Rs 16,000 crore amid a six per cent jump in the benchmark Sensex index.
Although the inflows in October were less than the preceding two months, they were much higher than the average monthly inflow of Rs 11,000 crore for the first nine months of the calendar year.
In August and September, equity MFs had seen an average Rs 20,000 crore of inflows amid weakness in the market. Last month, however, the flows remained strong despite the markets seeing their biggest monthly jump since March 2016.
Shares of state-owned banks and infrastructure companies saw a huge spurt in October after the government announced a stimulus package in the form of a Rs 2.11-lakh crore bank recapitalisation and Rs 7-lakh crore worth of investment in the roads sector.
On a year-to-date (YTD) basis, the net inflows into equity MFs have climbed to Rs 1.16 lakh crore. The huge inflows are providing money managers with the abundant liquidity to invest in stock markets. Last month, fund managers bought shares worth Rs 9,000 crore, taking their YTD investment tally to Rs 95,500 crore.
Equity mutual fund investment
Industry players say a third of the equity inflows are on account of investments through the so-called systematic investment plan (SIP) route. Flows coming through this route are considered to be consistent.
“Domestic flow momentum continues unabated and has helped market hit new high despite FII outflows,” said Citibank in a note last week, while increasing the Sensex target from 32,200 to 33,800 for March 2018.
In October, the equity asset base grew by 7.5 per cent, while the overall assets under management (AUM) grew five per cent.
The AUM of equity-oriented schemes swelled to Rs 7.08 lakh crore at the end of October, data released by industry body Association of Mutual Funds in India (Amfi) on Monday showed. Equity assets are now a third of the total AUM of the MF industry, which stood at Rs 21.4 lakh crore.
In October, the overall net inflows int all MF schemes stood at Rs 51,000 crore. The debt-oriented ‘income fund’ category saw the highest inflows at Rs 41,000 crore, while certain other categories such as gold funds and money-market schemes saw net outflows.
Amid lowering of bank deposit rates and falling yields from traditional investment vehicles such as gold and real estate, investors are fast shifting to financial assets. The MF sector is emerging as a clear beneficiary of this trend.
Industry observers say the inflows into mutual funds are likely to sustain at the current rate as the domestic financial savings rate is set to increase from the current levels.
“There is room for more inflows as India’s financial saving as a percentage of GDP is just nine per cent compared to about 15 per cent eight years ago,” said Ridham Desai, managing director at Morgan Stanley India, at a recent media briefing.
The industry aims to reach an AUM of Rs 95 lakh crore by 2025, given the current pace of growth.