The Rs 27-trillion mutual fund (MF) industry could see some slowdown in March, with estimates (up to March 27 for 80 per cent industry assets) suggesting a dip of 10-15 per cent to Rs 9,100-9,700 crore in the equity segment. Industry players say flows have shown resilience in a highly-volatile month that also saw closure of MFs’ branch offices due to Coronavirus-induced lockdown.
Compared to the last 12-month average of Rs 6,984 crore, the estimated equity flows are still 30-38 per cent higher.
The monthly flows for industry are typically released with lag of 7-10 days.
“The flows have been robust, even though there is some decline. The current sell-off has also given fund managers an opportune time to deploy cash in markets with several stocks in mid- and small-cap segment trading at attractive valuations,” said a fund manager.
Further, industry participants suggest that flows have stayed strong even during the lockdown period even though offline channels were suddenly shut due to country-wide lockdown.
According to industry estimates, equity schemes garnered net flows of Rs 1,150 crore in last week, when the three-week lockdown was made effective by the government.
“The digital channels have allowed the flows to continue despite the challenges. Distributors as well as individual investors have efficiently used digital channels to make the investments,” said another fund manager.
Digital platforms have also seen increased traction. “We have seen lump sum flows increase. Existing investors have increased allocations in systematic investment plans (SIPs) on our platform. While section of new investors coming from offline to online is limited, there has been a pick-up in do-it-yourself investors, who want to track and take quick decisions online,” said Harsh Jain, co-founder, Groww, Bengaluru-based digital platform.
Experts say high-networth investors could have heavily contributed to redemption requests to book losses in the year-end period for some relief on taxation.
Equity-linked saving schemes or ELSS — which are used by investors for tax-related savings — saw sizeable flows of Rs 1,075 crore in March, rising 23.4 per cent over previous month. Experts say ELSS could continue to see decent flows as government has extended deadline to complete investments till June 30 from March 31, 2020.
However, arbitrage funds could see Rs 25,000 crore- Rs 30,000 crore of net outflows so far in March. Experts say this can be attributed to futures starting to trade at discount to cash market prices due to higher market volatility.
“This temporary dislocation in markets had weighed onto the returns of arbitrage schemes,” said executive of a fund house.
Meanwhile debt schemes are likely to have seen much higher redemptions with corporates looking to dip into their investments to deal with payment obligations as daily operations have been disrupted amid lockdown.
Redemption pressures had spiked in debt schemes with close to Rs 1 trillion of investments getting pulled in the week prior to the announcement of the lockdown.
The fear of redemption pressures in debt schemes was compounded due to anticipation of flows in quarter-end and year-end period.
This had prompted MF industry to write to Reserve Bank of India (RBI) to provide liquidity support. RBI last week announced Rs 3.74 trillion of liquidity enhancement measures, which entailed that banks would also need to absorb the supply pressures coming into the corporate bond market by mutual funds and non-bank financial companies.
“This move should help fund houses to deal with redemptions. Debt market are now seeing improved liquidity following RBI’s intervention,” said a debt fund manager.