Equity mutual funds record first net inflows in nine months

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Is it the traditional March effect — one that makes the average saver unusually generous toward tax-saving equity packages ahead of the FY-end deadline? Or does this reflect newfound optimism in India’s growth-revival story? Regardless of the votes in favour of either explanation, this crucial data set can’t be ignored: The first positive inflow into equity funds after eight months.

Inflows amounted to ₹9,115 crore in March, driven by categories like ELSS, sectoral, focus and flexi-cap funds. Collections through systematic investment plans (SIPs) rose to ₹9,182 crore, from ₹7,528 crore in February, though industry attributes about ₹500 crore as spillover from February due to a short month.

Debt funds saw outflows of ₹52,528 crore, as corporate investors withdrew money to pay advance tax and make other year-end balance sheet adjustments, taking average assets under management (AUM) to ₹32.17 lakh crore. That’s marginally lower than previous month’s ₹32.29 lakh crore.

“Investors sitting on cash have used volatile days in March to add to equity mutual funds,” says Raghav Iyengar, Chief Business Officer, Axis Mutual Fund.

Distributors, however, believe it is important for the spread of the pandemic to be contained for investors to continue their faith in equity mutual funds. There are hopes that quick vaccination will help deal with the pandemic.

“Lower interest rates and lack of better investment options will bring back the appetite for equity as an asset class and this perhaps could be the turning point in the sales trend for equity mutual funds,” says Akhil Chaturvedi, head of sales & distribution, Motilal Oswal Asset Management Company.

Among equity mutual funds, ₹1,552 crore came into ELSS funds as many self-employed professionals rushed to invest before the end of the financial year. Sectoral funds attracted ₹2,009 crore, with a bulk of it going to technology funds, with investors believing that earnings of these companies would increase as many more businesses turn to digital technologies and automation.

Target maturity debt funds and passive equity mutual fund NFOs saw flows of ₹2,126 crore as investors got cost conscious. International fund of funds saw collections of ₹1,715 crore as two NFOs were launched in March.

Balanced advantage funds that invest in a mix of debt, equity and arbitrage based on market valuations and are recommended for first time investors saw inflows of ₹2,700 crore. As debt funds continued to be volatile, investors continued to add to arbitrage funds, seeing flows of ₹3,088 crore.