SIP flows stay robust in April but credit risk funds feel the heat

The month of April was entirely spent in the midst of a shutdown and the lower stock market volumes also rubbed off on MF flows.

May 12, 2020 08:05 IST India Infoline News Service

The Apr-20 mutual fund flows data had little by way of surprises. At a macro level, what stands out is the sharp fall in the total AUM over the last two months. Between Feb-20 and Apr-20, the overall AUM of Indian mutual funds fell by 19%. This was partially due to the crash in the equity markets and partially due to the outflows in debt funds.
Data Source: AMFI

COVID-19 continued to be the overhang in mutual fund flows for the month of April 2020. The month of April was entirely spent in the midst of a shutdown and the lower stock market volumes also rubbed off on MF flows.

Liquid funds save the day for debt funds in April
For the month of April, liquid funds that had seen big exits in March, saw funds flowing back to the tune of Rs68,800cr. Apart from liquid funds, the bias was clearly towards safety as gilt funds and banking & PSU funds saw inflows to the tune of Rs9000cr. However, all other debt fund categories ranging from low duration funds to long duration funds saw outflows during the month. However the biggest outflows of Rs19,238cr was in the case of credit risk funds. These outflows got accentuated after April 24th when Franklin Templeton announced the winding up of six of its debt schemes due to excess redemption pressure. The problem was clearly liquidity of debt paper and the quality of bonds held by these credit risk funds. Debt funds as a category saw inflows to the tune of Rs43,432cr but that was largely due to the inflows into liquid funds. April was a clear risk-off month for debt funds as investors preferred the flight to safety.

Equity fund inflows halve in the month of April
Equity fund inflows showed two distinct trends during the month of April 2020. Firstly, the overall volumes of inflows and outflows fell by 60% in April and that could largely be attributed to the lockdown effect. Most investors were putting their investment decisions on hold due to the ongoing uncertainty. The net inflows into equity funds were lower by 50% at Rs6213cr. The inflows into equity funds were almost uniform across categories and diversified funds as well as focused funds saw steady inflows. The real casualty in terms of equity flows was the lump sum flows. If you remove the SIP flows into equity funds, the lump sum flows into equity funds would have actually been negative.

Hybrid funds and Passive schemes also saw inflows in April
Despite the pressure of the lockdown, the flows into hybrid and passive funds continued. Let us look at hybrid funds first. The biggest category of inflows was in arbitrage funds which saw inflows of Rs6587cr; a huge reversal after the sharp sell-off in March. Other than arbitrage funds, other categories of hybrid funds like aggressive allocation, conservative allocation and equity savings funds also saw outflows in April.

Passive funds also saw overall inflows to the tune of Rs1292cr. With the CPSE ETFs not active in the current scenario, a big source of passive inflows was missed out in the month of April. Otherwise, index funds and gold ETFs saw moderate inflows during the month of April. However, what is surprising is that the gold ETF AUM at around Rs9200cr is yet to pick up traction. That may have partly to do with the natural conservatism off the Indian consumer when gold prices go up sharply.

SIP story continues to define the mutual fund segment

Data Source: AMFI

Before embarking on the SIP flow story for the month of April, let us look back at how SIP flows have panned out in the last four fiscal years. Clearly, the annual SIP collections have grown nearly 2.5 fold in the last 3 years along. This is a clear indication of retail mutual fund investors coming of age. SIPs largely represent retail flows into equity funds and ELSS and are a good barometer of whether the rally is sustainable or not. Even in a tough month like April 2020 when the entire economy was under shutdown, SIP inflows at Rs8376cr have remained robust.

As of the end of April 2020 there are 3.14 crore SIP accounts actively investing in mutual funds. The SIP AUM at Rs276,000cr is nearly 12%
of the total mutual fund AUM and almost one-fourth of individual investor AUM. That is the good news as SIPs represent a most sustainable approach in terms of flows. Of course, the only concern in the last few months has been the SIP closure ratio crossing 70%, but that should automatically rectify once the markets become less volatile. For now, clearly, SIPs are holding the fort for Mutual Fund flows.

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