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Amid softening yields, MFs turn to equities for 2nd month in a row

Investment by mutual funds (MFs) in equities will continue in coming months seeing the increase in user growths as multiple fintech players are entering into this space, Kaushlendra Singh Sengar, founder and CEO at INVEST19, said.

By: ENS Economic Bureau | New Delhi |
May 10, 2021 3:00:48 am
According to Sebi data, MFs put in a net amount of Rs 5,526 crore in equities in the month of April, much higher than a net sum of Rs 4,773 crore invested in March.

Continuing their buying spree for the second straight month, mutual funds invested Rs 5,526 crore in stocks in April with fund managers sensing opportunities after some consolidation in the market.

Investment by mutual funds (MFs) in equities will continue in coming months seeing the increase in user growths as multiple fintech players are entering into this space, Kaushlendra Singh Sengar, founder and CEO at INVEST19, said.

Alok Aggarwala, Chief Research Officer, Bajaj Capital, is also of the view that this bullish stance to continue as valuations moderate somewhat post FY21 earnings and the consolidation provides investors with an opportunity to accumulate equities.

Another factor driving this stance is the softening of bond yields from March onwards, forcing investors to flock to equities in search of higher returns, he added.

According to Sebi data, MFs put in a net amount of Rs 5,526 crore in equities in the month of April, much higher than a net sum of Rs 4,773 crore invested in March.

This was the first such fund infusion by MFs in 10 months.

Prior to the inflows, mutual funds had been withdrawing money from equities since June 2020, data available with the Securities and Exchange Board of India (Sebi) showed.

“We have witnessed 15.8 per cent monthly investment growth by mutual funds into equities last month as volatile stock market pushed investors to invest via equity mutual funds to reduce risk,” Sengar said. On the other hand, mutual funds put in nearly Rs 21,600 crore in debt markets in the month under review.

Alok Aggarwala, Chief Research Officer, Bajaj Capital, said mutual fund flows are generally a reflection of investor flows in the respective mutual fund schemes.

Domestic investors had been taking out money from equity mutual fund schemes since July 2020 and March 2021 was the first month when the trend changed.

In addition, spike in SIP flows was witnessed in March rising to Rs 9,182 crore from Rs 7,528 crore in the preceding month. Hence, the positive flow by mutual funds in equities was witnessed in March, he said.

Though the data is not yet out, but this trend of net inflow in equity mutual fund schemes seems to have continued in April 2021 too, leading to positive flows by mutual fund, he added.

Furthermore, there have been positive flows in mutual funds schemes in March and April that provided fund managers with additional liquidity to manage, he added. Month-wise, MFs withdrew Rs 16,306 crore from equities in February, 13,032 crore in January, Rs 26,428 crore in December, Rs 30,760 crore in November, Rs 14,492 crore in October, Rs 4,134 crore in September, Rs 9,213 crore in August, Rs 9,195 crore in July and Rs 612 crore in June.

These outflows were mainly due to profit-booking by investors amid rally in stock markets.

However, MFs had invested over Rs 40,200 crore in the first five months (January-May) of 2020. Of this, Rs 30,285 crore was invested in March 2020.

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