While COVID-19 has made equity flows tepid, debt fund flows continued to be robust. However, even within the debt fund category, safer classes like liquid funds, corporate bond funds and PSU funds continue to attract bulk of inflows. That sustained in May 2020 too.
Debt fund flows are dominated by Liquid Funds
Like in April 2020, liquid funds continued to dominate the debt fund flows with net inflows of Rs61,871cr during May. The inflows continued to remain focused on the safer end of the funds spectrum with the Banking & PSU funds getting inflows of Rs8873cr, Corporate Bond Fund getting inflows of Rs3831cr and Gilt Funds Rs1947cr in May 2020. On the selling side, credit risk funds continued to see heavy selling to the tune of Rs5173cr during the month of May 2020. Even medium duration funds witnessed outflows of Rs1520cr and the risk perception of these funds appear to have increased after the decision by Templeton to wind up six of its funds. Overnight funds continued to be volatile on the back of dovish interest rate scenario. Other funds at the short end like money market funds and short duration funds also attracted net inflows. Overall, debt funds command an AUM of Rs12.85 trillion if the closed fixed maturity plans (FMPs) were also added up.
Equity fund inflows trend lower in May 2020
After the 50% MOM fall in equity fund flows in April 2020, the fall was slightly tempered at just about 16% in May 2020. The total equity fund flows at Rs5256 crore was one of the lowest in recent times. However, the positive flows were spread across all the categories including large cap, multi cap, mid cap and thematic funds. But the real story of equity fund flows is captured by the graphic above. SIP flows continued to be robust in the month of May but lump sum investors have been a lot more wary. If you look at the SIP flows against overall equity fund flows, the lump sum flows into equity funds have been negative in 13 out of the last 17 months. Of course, there are also debt fund SIPs but they are negligible. SIPs appear to be holding equity fund flows in the last one year.
Hybrid funds and Passive threw some pleasant surprises
The story of hybrid funds was all about arbitrage funds during month. While arbitrage funds saw inflows of Rs10,806cr, hybrid funds overall saw inflows of Rs8652cr. That is because there were outflows from aggressive and conservative balanced funds in May. The spurt in arbitrage fund flows could be for two reasons. Firstly, corporate investors are looking at arbitrage funds as an alternative to short term debt funds. Secondly, arbitrage funds saw huge outflows in March and that money may be coming back.
Passive funds had a much better month in May 2020 with overall inflows of Rs2471cr. Apart from index funds, the index ETFs and gold ETFs also saw smart inflows during the month of May. The CPSE ETF activity needs to pick up for this segment to see better inflows. The gold AUM has finally crossed the Rs10,000cr mark after a long time but for the amount of gold held by Indian households, the AUM of gold ETFs in India still leaves a lot to be desired, especially if you weigh it against global gold AUM benchmarks.
SIP story continues to define the mutual fund segment
The SIP inflows at Rs8123cr in May 2020 may be lower than the previous months but it is still above the Rs8000cr mark, notwithstanding the COVID-19 related pressures since March this year. That is the good news for the mutual funds. But SIPs is where the real action is happening. Consider some of the interesting numbers published by AMFI. As of the end of May 2020, number of SIP accounts stood at 3.16 crore as against 3.14 crore accounts in April. The SIP AUM continues to be flat at Rs276,000cr and is a little under 12% of the total mutual fund AUM. SIPs represent a most sustainable approach in terms of flows and are significant as they form the basis of long term financial planning. That is why SIP flows are good news!