MUMBAI: With the market selloff continuing unabated—having lost close to 18% from the September peak--the net equity inflows into mutual funds has slumped 26% to Rs 29,303.34 crore in February, pulling down the total AUM of the industry by 4.04% to Rs 64.53 trillion.
However, net inflows into open-ended funds though slipped yet managed to stay in the positive for the 48th month in a row and so did inflows into large-cap funds, which dipped just 6.4% to Rs 2,866 crore. However, midcaps and small caps, which have been facing the worst of the market selloff, with net investments into the smallcap funds plunging 35% to Rs 3,722.46 crore and those into midcap funds crashing 33.8% to Rs 3,406.95 crore in February, the Association of Mutual Funds (Amfi) said Wednesday.
Accordingly, Amfi said due to the heavy mark-to-market losses in the equity segment, overall assets under management (AUM) of the industry fell 4.04% in February to Rs 64.53 trillion from Rs 67.25 trillion in the previous month.
The fall in inflows has come at a time of deep market correction, as February saw the Sensex slumping 5.55% and Nifty falling a bit more to the tune of 5.89%, roiled by global uncertainties, weak earnings and a sluggish economy.
All the equity fund categories, apart from the focused fund category saw a dip in inflows during the last month. Focused funds saw a 64.4% jump in investments to Rs 1,287.72 crore. On the fixed-income front, debt funds saw net outflows almost having to just about Rs 6,525.56 crore as against net inflows of Rs 1.28 trillion in January.
Ultra-short duration funds saw outflows of Rs 4,281.02 crore, while money market funds saw net selling of Rs 3,275.97 crore; on the other hand liquid funds saw net inflows of Rs 4,976.97 crore, and corporate bond funds saw net buying of Rs 1,064.84 crore.
Commenting on the massive dip in inflows, Nehal Meshram, a senior research analyst at Morningstar India said the massive drop in debt-oriented funds pulled down the industry AUM.
Ten of the 16 debt fund categories saw net outflows, indicating that the bulk of redemptions were concentrated in short-duration funds, he said, adding despite short-term redemptions debt funds remain an important allocation tool, and flows may stabilize in the coming months as market conditions evolve.
Investors may be positioning themselves for more interest rate cuts in the coming months, which could lead to capital appreciation in long-duration bonds, he said.
Karthick Jonagadla of Quantace Research said, the massive correction in Nifty and Sensex presents valuation opportunities for investors who are now shifting tactically, balancing market corrections with selective high-conviction Focused Funds while awaiting clearer macro signals.
Meshram further said domestic investors have continued their strong participation in equity-oriented mutual funds in February, marking the 48th consecutive month of net inflows into the segment. Despite this recent volatility, long-term investors remain committed to their investment strategies, demonstrating the importance of disciplined investing amid market fluctuations.
However, the pace of investments moderated due to increased market uncertainty and a broader correction in equities.
In February, investors pumped in only Rs 29,303.34 crore into equity-oriented funds, down from Rs 39,687.78 crores in January. Several factors contributed to the decline in investor sentiment, including concerns over rising interest rates in developed markets, particularly the US.
While short-term headwinds have tempered investment flows, domestic investor confidence remains strong, as indicated by continued inflows. Investors are adopting a cautious yet steady approach, reassessing their portfolios while maintaining long-term investment commitments.