Investors stick to mutual funds despite LTCG tax and volatility

Equity mutual funds continued to receive robust fund inflows in February 2018 despite reintroduction of the long-term capital gains tax in the FY18-19 Union Budget and a volatile month, reflecting investors' commitment to long-term investments.

Mar 09, 2018 01:03 IST others Jitender Singh |

Equity mutual funds continued to receive robust fund inflows in February 2018 despite reintroduction of the long-term capital gains (LTCG) tax in the Union Budget for FY18-19 and a volatile month, thus reflecting investors' commitment to long-term investments. Equity mutual funds and ELSS funds received a net inflow of ~Rs14,680cr in February 2018, a growth of 10% mom and 169% yoy. During FY18 (till February), mutual funds and ELSS funds saw net inflows of ~Rs1.6 lakh crore against ~Rs62,000cr recorded in the corresponding period of FY17, as the equity market was making new highs every month.

Meanwhile, balanced funds have witnessed a decline in inflows in February 2018 against the previous month. However, balanced funds received net inflows of ~Rs83,000cr during FY18 (till February) as compared to ~Rs30,600cr recorded in the corresponding period of the previous fiscal.

Income funds and Gilt funds continued to witness net outflows as bond yields rose continuously in fear of a rise in inflation and fiscal slippage. As on March 9, 2018, 10-year government bond was trading at a yield of 7.7%, up ~119bps in last 6 months.

(in Rs crore)

Net Inflow / (Outflow)
Feb 2018

Net Inflow / (Outflow)
Jan 2018

Net Inflow / (Outflow)
Feb 2017

Outflow For the Year to Date - Current Year

Net Inflow / (Outflow) For the Year to Date - Previous Year

INCOME

-9,799

-9,871

10,864

7,868

1,76,880

INFRASTRUCTURE DEBT FUND

140

-

-

340

-

EQUITY

14,683

13,404

5,465

1,53,799

54,960

BALANCED

5,026

7,665

4,562

83,003

30,658

LIQUID/MONEY MARKET

1,223

96,552

8,227

52,043

1,10,973

GILT

-1,621

-1,192

-722

-2,802

-2,175

ELSS - EQUITY

1,585

1,986

997

10,613

7,191

GOLD ETFs

-94

-110

-46

-773

-695

OTHER ETFs

953

-2,234

930

18,876

20,455

FUND OF FUNDS INVESTING OVERSEAS

-4

-41

-4

-418

-315

12,092

1,06,159

30,273

3,22,549

3,97,932

Source: AMFI

Liquid funds have seen a modest net inflow of ~Rs1,200cr in February 2018 compared to a significant net inflow of Rs96,500cr in January 2018. Further, there is a phenomenon in liquid funds that they witness huge net outflow in December and similar inflows in January each year, as shown in the chart below). This is because corporates withdraw their money from liquid funds in December, before the quarter ends, and reinvest in January every year. Corporates are the largest investors in liquid funds. However, this phenomenon was not seen in 2016-17, which could be due demonetization (November 2016).

Source: AMFI

In February 2018, the AUM of the Indian mutual fund industry stood at Rs22.2 lakh crore, down ~Rs20,900cr  due to outflows from debt funds. 

(Rs in Crore)

AUM as on Feb 2018

% to Total AUM

AUM as on Jan 2018

% to Total AUM

AUM as on Feb 2017

% to Total AUM

INCOME

7,91,494

35.6

8,01,405

35.8

7,94,679

44.4

INFRASTRUCTURE DEBT FUND

2,445

0.1

2,295

0.1

1,891

0.1

EQUITY

6,95,870

31.3

7,03,930

31.4

4,63,296

25.9

BALANCED

1,74,468

7.9

1,76,087

7.9

77,126

4.3

LIQUID/MONEY MARKET

3,87,269

17.4

3,81,930

17.0

3,31,777

18.5

GILT

11,625

0.5

13,332

0.6

15,799

0.9

ELSS - EQUITY

80,972

3.6

82,974

3.7

56,724

3.2

GOLD ETF

4,830

0.2

4,906

0.2

5,766

0.3

OTHER ETFs

69,848

3.1

72,879

3.3

40,147

2.2

FUND OF FUNDS INVESTING OVERSEAS

1,505

0.1

1,537

0.1

1,842

0.1

22,20,326

100.0

22,41,275

100.0

17,89,047

100.0

 Source: AMFI

Since the Indian equity market has entered a phase of consolidation fearing four rate hikes in the US in 2018, rising crude oil prices, increasing bond yields and uncovered frauds at state-owned banks, investors should focus on the longevity of investments. In debt mutual funds, investors should invest in low duration debt funds since the fear of a rise in inflation could drag the returns of Gilt funds and long-term debt funds in 2018.



Related Story