In the mutual fund landscape, the month of November saw offloading from the equity segment for the fifth straight month, nonetheless there was traction in non-equity portion that contributed to year on year gain in AUM for the funds by as much as 11 percent. This is as per a Nomura report.
The outflow stood on the higher side in fact at the steep Rs. 12917 crore in comparison to Rs. 2724 crore for the month of October 2020.
High redemptions and moderate inflows
Net outflows during the period under review was at Rs. 136 billion, which is the highest since June 2019, owing to redemptions being on the higher side at Rs. 288 billion. Inflows moderated on account of less working days in the festive month. And this large scale redemption was primarily on account of rebound in markets where investors and mutual funds took to profit booking.
What is triggering outflow from equity mutual funds?
Investors preferred profit booking on market uncertainty
Equity schemes are seeing huge redemption even as the markets are seeing new peak every other day. This is primarily on account of uncertainty in the markets.
SIP investments also decreased month on month to Rs. 73 billion from Rs. 78 billion in October 2020 as investors preferred to book profits amid high market valuations. The number of systematic investment plan (SIP) accounts grew to 3.4 crore in November from 3.37 crore in October.
Also, at this junction, with record gains being seen on the indices, investors may be lured to take on direct trading.
"From the lows of March 2020 correction, the market has given some stupendous returns, leading to the belief that it is over-heated and therefore we saw outflow from equity mutual funds to the extent of 35,000 crore, highest ever seen," said Akhil Chaturvedi, Associate Director & Head of Sales, Motilal Oswal Asset Management Company.
"Adjusted for inflows of 17,000 crore (50 percent of which would be SIP flows), the net redemptions have been almost 18,000 crore," Chaturvedi said.
Direct investing saw interest
Another reason is that while there were redemption in equity schemes of mutual funds, there was not complete offloading from equities as such. This is because some of these funds made their way into direct equities.
Money redeemed from equity funds found its way into real estate
Experts also suggest that some of the proceeds from these equity funds were also put to purchase real estate amid low interest rate, offers from real estate developersand other taxation benefits doled out by the centre.
Some prefer sitting on cash
There are also investors who would be sitting on cash to deploy once again after a meaningful correction in near future, Chaturvedi said.
Another pointer here to note is that since the last three days of the last month were non-working, SIP flows received during that time may not be reflected in the data released.
Going ahead, we may see investors redeeming their equity mutual fund portfolio and deploy the funds for some short term investments including debt funds etc.