Equity mutual fund schemes saw a moderation in investor inflows in July 2024, while the Indian equity market received good returns in the month.
According to data released by the Association of Mutual Funds in India (AMFI), equity mutual fund schemes attracted a net inflow of ₹24,697 crore in July, down around 15% from ₹28,973 crore in June.
The decline occurred even though the benchmark Sensex was up 2.11% in July, and mutual fund flows are not always in line with short-term stock market performance.
At the same time, the mutual fund industry exhibited a remarkable improvement, and in large part that was because of a dramatic turnaround of debt-oriented schemes.
Equity Mutual Fund Inflows Decline
Equity mutual funds remained among the most closely watched investment types, but their net inflows were lower in July.
The ₹24,697-crore inflow was down a month-on-month of about 15% compared to June.
The moderation didn’t necessarily reflect a loss of investor interest in equities. Investors were still putting money into a variety of equity classes, though the pace of inflows was lower than in the previous month.
The July flow data are broadly in line with expectations, according to Santosh Joseph, CEO of Germinate Investor Services, with continued investor interest in diversified equity categories.
Small-Cap Funds Lead Equity Categories
In terms of equity-oriented mutual funds, small-cap funds received the highest net inflow in July of around ₹7,768 crore.
Mid-cap funds were followed by a net inflow of around ₹6,192 crore.
Flexi-cap funds came third with around ₹4,710 crore in the month.
Large-cap funds, meanwhile, saw much lower inflows of around ₹1,322 crore.
The data also indicates that investors still have a strong appetite for segments that give exposure to smaller and mid-sized companies, as the overall equity fund flows were down.
Equity Fund Inflows in July:
- Small-cap funds: ₹7,768 crore
- Mid-cap funds: ₹6,192 crore
- Flexi-cap funds: ₹4,710 crore
- Large-cap funds: ₹1,322 crore
Small-cap funds thus remained the biggest beneficiary among the major equity categories during the month.
Gold ETF Inflows Also Decline
Gold ETFs also saw a reduction in inflows in July.
Gold ETFs attracted a net inflow of about ₹1,559 crore, compared with ₹3,443 crore in June.
That is a 54.7% month-on-month decline.
The sudden drop suggests that investor flows into gold ETFs in July were much weaker than in the previous month.
Gold ETFs continued to attract positive net investment, so investors were still holding some exposure to the precious metal asset class.
Debt Funds Deliver Strong Turnaround
While equity funds had weaker inflows, debt mutual funds had a particularly good performance in July.
Debt-oriented schemes recorded net inflows of about ₹1.88 lakh crore in the month.
This represented a big turnaround from June, when debt-oriented schemes had seen an outflow of around ₹1.09 lakh crore.
The sharp shift in debt fund flows was one of the biggest reasons for the improved overall mutual fund industry flows during July.
Debt schemes can attract significant institutional and corporate money depending on liquidity requirements, interest rate expectations, and month-end or quarter-end treasury movements. Therefore, monthly debt-fund flows can be substantially more volatile than equity inflows.
Mutual Fund Industry Sees Major Improvement
Despite the decrease in equity inflows, the mutual fund industry in July had a good turnaround.
The industry had a net inflow of around ₹2.36 lakh crore in the month, while a net outflow of about ₹52,949 crore in June was recorded.
The significant month-on-month improvement was largely due to debt-oriented schemes.
The assets under management in the industry also increased dramatically.
Mutual fund industry AUM rose to approximately ₹85.76 lakh crore at the end of July, compared with ₹82.22 lakh crore at the end of June.
This is an increase of about ₹3.54 lakh crore in one month.
What the July Data Indicates
The July numbers provide a good picture of investor behaviour.
Equity mutual funds kept getting positive net inflows, but the pace was slower. Investors were more likely to hold small-cap, mid-cap, and flexi-cap funds in equities than large-cap funds.
At the same time, debt funds experienced an exceptional inflow, dramatically reversing the previous month's trend.
This suggests that mutual fund flows are influenced by more than stock-market developments, such as asset allocation, liquidity needs, interest rate expectations, and investor preferences.
Equity Market Gains Did Not Guarantee Higher MF Inflows
One of the most interesting aspects of the July data was the divergence between equity market performance and equity mutual fund flows.
The Sensex rose by 2.11% in the month, but equity mutual funds lost about 15% in the month.
This shows why monthly market returns and mutual fund flows should not necessarily be related.
Investors may continue systematic investment plans (SIPs) and other long-term investments even when monthly inflows fluctuate.
July 2024 gave a mixed picture to India’s mutual fund industry.
The equity mutual fund inflows fell 15% month-on-month to ₹24,697 crore, and small-cap funds ranked as the biggest recipients among major equity categories.
Gold ETF flows also came to a halt in July and fell more than half compared with June.
However, the entire industry experienced a remarkable turnaround mainly due to the fact that debt-oriented schemes attracted nearly ₹1.88 lakh crore.
With total mutual fund AUM rising to ₹85.76 lakh crore by the end of July, the data shows the continued size and depth of the mutual fund industry in India, and the way investors trade the equity, debt, and other asset classes according to market and liquidity conditions.
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