Mutual Funds Losing Their Shine? Equity Funds Inflow Slides 22% To One-Year-Low In May, Says AMFI

Equity mutual funds experienced a significant drop in net inflows, falling by 21.66% to Rs 19,013.12 crore in May, marking the lowest level in a year. This decline was reported by the Association of Mutual Funds of India (AMFI) on June 10. Despite this decrease, the mutual fund industry's total assets under management (AUM) increased to Rs 72.20 lakh crore from Rs 69.99 lakh crore in April.

Interestingly, the Systematic Investment Plan (SIP) route saw an increase in monthly inflows, reaching a new high of Rs 26,688 crore in May. This rise occurred even though there was a reduction in equity category inflows. The market recovery did not prevent the slump in equity inflows; the BSE Sensex rose by 1.51%, and NSE Nifty50 increased by 1.71% during May.

Equity Funds Performance

The equity segment faced varied trends across different categories. Largecap Fund inflows dropped sharply by 53.19% to Rs 1,250.47 crore. Smallcap funds also witnessed reduced demand with net inflows decreasing by 19.64% to Rs 3,214.21 crore, while midcap funds saw a decline of 15.25% to Rs 2,808.68 crore.

Multicap funds experienced an increase of 17.54% in inflows, reaching Rs 2,999.29 crore as they invest at least 25% each in largecap, midcap, and smallcap stocks. Conversely, flexicap funds saw a substantial dip of 30.68% in inflows to Rs 3,841.32 crore during May.

Debt Funds Overview

The fixed-income segment showed contrasting trends with debt mutual funds experiencing net outflows of Rs 15,908.48 crore compared to April's inflow of Rs 2.19 lakh crore. Liquid Funds had significant net outflows amounting to Rs 40,205.36 crore while Overnight Funds saw net selling worth Rs 8,120.03 crore.

Corporate Bond Funds and Money Market Funds bucked the trend with net buying of Rs 11,983.35 crore and net inflows of Rs 11,223.08 crore respectively during May.

Overall, despite challenges faced by specific segments like equity and debt funds, the mutual fund industry recorded total net inflows amounting to Rs 29,108.33 crore for May.

"Indian investors are becoming more mature and are allocating rationally. Allocations to flexicap and multicap funds continues. While smallcap funds are getting lower allocations due to valuation concerns. Flexicap allocation by the investors allows the fund managers to allocate across the market wherever the opportunities might lie. Sector funds are still getting positive traction but investors should be cautious while allocating being conscious of valuations in the popular sectors. If they pay attention to the PE ratios of the fundss they are allocating to it will help rational capital allocation and lower chances of sectoral or thematic bubbles. The outflows from debt funds shows that investors are clear that there is better upside in equities than debt from a interest cutting cycle," said Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital.