Of course, this data was captured as on the last date of October. The big rally in the Nifty and Sensex has been visible in the first week of November, so the good news for November AUM is already getting built, but we will wait for that.
A deluge of money came into debt funds in Oct-20
If the month of September 2020 saw nearly Rs52,000cr exiting debt funds, nearly twice that amount came back into debt funds in the month of October. With the advance tax season over and short-term liquidity pressures out of the way, inflows into debt funds were to the tune of Rs110,466cr in Oct-20. It is also an indication that institutions are flush with funds in the post-COVID scenario and that is a good signal.
Let us look at specific categories of debt funds. In Oct-20, the short-end combination of money market funds, liquid funds, ultra short term duration funds, short duration funds and low duration funds saw inflows of Rs80,000cr. Among the other categories, corporate bond funds saw inflows to the tune of Rs15,051cr on hopes that rates would stay accommodative in the foreseeable future.
PSU Banking fund and Floater Funds also saw inflows of Rs11,500cr while gilt funds saw a much smaller inflow. The only category that still witnessed outflows was the credit risk segment. But even here, the outflows at Rs415cr were nothing close to what we saw in the aftermath of the Templeton fiasco.
It is the fourth month of outflows for equity funds
The equity fund net redemptions continued for the fourth month in succession. It is a very long time since Indian equity funds saw four successive months of net redemptions. Higher valuations and financial constraints among retail investors is one side of the story. The other side is that most mutual funds are restrained by the exposure rules from focusing on a handful of high performance stocks. That kurtosis is hurting MF performance. Since July 2020, the total outflows from equity funds have been close to Rs10,000cr.
Sectoral funds at Rs2,215cr were the only category to see meaningful inflows. Most of the other categories saw outflows with multi-cap funds seeing outflows to the tune of Rs1903cr. That can be attributed to the investment restrictions announced by SEBI and hopefully the introduction of flexi-cap funds should solve that problem. There is still encouraging news on SIPs. Even in a difficult month for equity funds, SIP inflows continued to remain at Rs7,800cr, hinting that the long term player is staying.
Aggressive hybrids sell off, but passive funds lose their appeal too
To an extent the trend in hybrids almost was a repeat of September. In Oct-20, aggressive hybrids once again saw outflows to the tune of Rs2,391cr as investors underplayed the equity game. However, other categories of hybrids also saw outflows, except the Arbitrage funds that saw inflows of Rs1,739cr. But that is a quasi-debt category where flows are normally in tandem with other debt funds.
Surprisingly, passive funds also saw outflows in Oct-20, in contrast to the trend in the last few months. Within the passive category, gold funds and global funds saw inflows, so the outflows were most likely triggered by EPFO selling some of its ETF holdings to compensate for the interest shortfall. We should get a clearer trend after that is over.
SIP flows could be the key data point to watch out for
SIP inflow in Oct-20 stood at Rs7,800cr and marked the fifth month when the SIP flows remained under Rs8,000cr. Interestingly, SIP as an asset class is still robust, although lump-sum monies are being withdrawn from equity funds. The total number of SIP folios actually moved up from 3.35 crore to 3.37 crore. However, the SIP AUM is up from Rs335,000cr to Rs342,000cr, largely on the back of an equity market rally.
Gross selling in equity funds continued to be elevated at Rs20,239cr in Oct-20 and there appears to be pressure of selling at higher levels. It appears to be a dichotomy of sorts. Demat accounts are growing, SIPs are still robust but lump-sum investors are exiting. The answer to this dichotomy may perhaps hold the key to MF flows in the future.