The Union Budget announcement to levy a long-term capital gains tax of 10 per cent on profit exceeding Rs 1 lakh for equity investments made after January 31, 2018, seems to have had some impact on the inflows into equity schemes of mutual funds in the month of February.
Data released by the Association of Mutual Funds in India show that in February, the gross sales across equity schemes of mutual funds declined by Rs 11,935 crore or 26 per cent over those witnessed in January 2018. The net inflow (net of redemptions) however, did not see any decline and it rose from Rs 13,404 crore in January 2018 to Rs 14,683 crore in February.
“We have seen a decline in gross sales for the month over that in the previous month. It does not reflect in net inflow numbers because redemptions have been low,” said the CEO of a large mutual fund.
While gross sales in February at Rs 32,297 crore is lower than Rs 44,232 crore witnessed in January, the numbers are higher than the average monthly sales of Rs 30,823 crore in the 11-months of the current fiscal. The year 2017-18 has seen record net inflows into equity schemes of mutual funds and for the 11-month period between April 2017 and February 2018 it amounts to Rs 1,53,799 crore, the highest ever in a year. The inflow in February is also higher than that average inflow for the 11 months of this fiscal.
Even as the net inflow rose in February across all MF schemes rose by Rs 12,092 crore in February, the asset base of the industry declined by nearly Rs 21,000 crore to Rs 22.2 lakh crore at February-end, primarily due to the fall in equity markets and outflow from debt schemes.
In February, the Sensex fell by nearly 5 per cent from a closing value of 35,965 points on January 31 to 34,184 points on February 28. In January, the average assets under management of the industry, comprising 42 players, stood at an all-time high of Rs 22.41 lakh crore.
“While the long-term capital gains tax on equity investments did initially had some impact on investor sentiment, it did not have a big impact on inflows into equities as they continue to be the most attractive investment avenue and are still one of the most tax-efficient investment instruments available,” said the CEO of another fund house.
Even as Sensex witnessed a marginal decline on February 1, after the Budget announcement, it fell 840 points on the following day triggered both by imposition of LTCG and by overall weakness in the global markets.