Mutual Funds May Have To Brace For Redemption Pressure

Mutual Funds may have to brace for redemption pressure, especially under the liquid scheme category. There maybe some redemption pressure also under the equity category, if the pain continues to be prolonged for the stock markets. Many retail investors, especially those who had small businesses, maybe tempted to withdraw money given the business disruption.

Corporates on the other hand may pull money from liquid funds and many mutual funds may now need liquidity support. With business coming to a standstill and many factories being shut, there maybe temporary liquidity flow issues, particularly as banks too will be unwilling to lend now.

This may force corporates, who may have parked their money in liquid funds to withdraw.

Equity investors will have to remain patient

Returns from equity mutual funds for 1, 2 and 3 years have turned negative. In fact, there is no equity scheme that is now showing positive returns for this period. Interestingly, a lot of flows into equity mutual funds have come in the last few years and the sudden market collapse may also leave these set of investors worried.

If markets continue to see significant downside from these levels, it is highly possible that inflows into equity mutual funds, through even the SIP route may start dwindling.