June quarter mutual fund flows show a sharp fall in volumes

Equity fund flows for the quarter were net positive but if you excluded the impact of SIPs, the lump-sum flows into equity funds would have been negative.

Jul 28, 2020 08:07 IST India Infoline News Service

The latest quarterly flows data put out by AMFI for the Jun-20 quarter shows tepid addition to the AUM. Of course, the average AUM in the June quarter remained way below the March quarter but there was one more trend visible. The overall volume of buy and sell transactions in mutual funds was also lower than previous quarters. This was largely in line with the trend in economy activity. In fact, there are some interesting trends that emerge as we compare each of the key categories with the previous four quarters.

How debt funds fared in the Jun-20 quarter?

For the Jun-20 quarter, the debt funds overall saw net inflows of Rs109,959cr. This was largely driven by Rs86,492cr of inflows into liquid funds and Rs20,912cr inflows into banking & PSU funds. Even corporate bond funds attracted Rs18,738cr of inflows during the Jun-20 quarter. However, the pressure was visible on the credit risk funds especially after Templeton shut down 6 of their funds in April this year. Credit risk funds saw net outflows of Rs25,906cr during the quarter. There were also some concerns over the credit quality of medium duration funds that saw outflows of Rs8,110cr.In the closed-ended category, there were concerns over FMPs that saw outflows to the tune of Rs17,438cr. Here is a comparison of overall quarterly flows with the previous four quarters.

Data Source: AMFI

One thing is clear that the overall corporate treasury volumes in debt funds have come down sharply in the recent 3 quarters compared to the two earlier quarters. In fact, if you compare the Jun-20 quarter on a YOY basis, the total volumes of MF transactions in debt are almost down by 60%. That is an indication of the stress on the overall corporate treasuries.

How equity funds fared in the Jun-20 quarter?

For the Jun-20 quarter, the equity funds overall saw net inflows of Rs11,710cr. Apart from dividend yield funds that saw a minor outflows, all the other categories of equity funds saw inflows during the Jun-20 quarter. Key categories of equity funds like large cap, ELSS, multi-cap, mid cap and focused funds continued to see steady inflows. However, there is one more trend that cannot be missed out. Passive funds like index ETFs and gold ETFs saw net inflows of Rs8,663cr during the Jun-20 quarter and that is almost catching up with the active fund inflows. Let us look at overall equity fund flow volumes for the Jun-20 quarter and how it compares with previous quarters.

Data Source: AMFI

Like in the case of debt fund flows, the equity fund flows have also tapered in the Jun-20 quarter compared to the previous quarters but the tapering of flows is not as acute as it is in the case of debt flows. Clearly, the slowdown in the economy and the lockdown following the pandemic has hit the corporate treasuries the most and that has had its effect on the debt fund flows. However, equity fund flows being predominantly retail flows, have not been overly impacted.

There is one more reason for the relatively better performance of equity fund flows compared to debt fund flows in relative terms. The bulk of net flows into equity funds are accounted for by systematic investment plans (SIP) that tend to be long term commitments. For example, in the Jun-20 quarter the net inflows into SIPs were Rs25,000cr, predominantly into equity funds. That means; lump-sum flows into equity fund have actually been negative.

Hybrid schemes see good flows led by arbitrage funds

In the Jun-20 quarter, the hybrid funds saw inflows of Rs13,213cr largely led by net inflows of Rs20,931cr into arbitrage funds. The volatility gave good opportunity for arbitrage funds to deliver returns and that also contributed to the flows into arbitrage funds. Also, a number of corporate treasuries preferred the more transparent portfolio disclosure of arbitrage funds and their consistent performance compared to the portfolio quality risks entailed in short to medium term debt funds. However, the other classes of equity and debt oriented hybrid funds saw outflows during the Jun-20 quarter.

Key takeaways from the mutual funds for the Jun-20 quarter

Three trends emerge from the MF flows in the Jun-20 quarter.

•  Overall flows volumes tapered in Jun-20 quarter with the impact being pronounced on debt fund flows. This can be largely attributed to the     strain on corporate treasuries.

•  Equity fund flows for the quarter were net positive but if you excluded the impact of SIPs, the lump-sum flows into equity funds would have     been negative.

•  There has been a clear risk-off move in debt funds with funds flowing out of credit risk funds, medium duration funds and even closed             ended FMPs.

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