Flows to India’s money funds strike a three-month high in November as calmness returned to the credit market recently spoiled by a rare debt default. Investors poured a net $20mn into liquid plans in November, as per industry data. The inflow is the highest since August, a month before the funds suffered the worst outflows since at least 2007 amid defaults at the IL&FS Group.
Defaults at IL&FS were a reminder that liquid funds, which account for a fourth of the 23tn rupees of industry assets, are also fraught with risk. Several fund houses marked down their holdings of debt issued by IL&FS, with some liquid funds losing as much as 5% -- or half a year’s worth of gains -- in a single day.
Investors stayed put in stock funds, though the pace of fresh investment slowed from the previous month ahead of the state elections. The market has been volatile and large investors have been on the sidelines to see how things pan out.
Retail investors have flocked to mutual funds since Prime Minister Narendra Modi took office in 2014. The inflow of cash has been aided by policy changes, including the currency clampdown in 2016, which hurt returns from property and gold, the traditional favorites.
The liquidity has provided a buffer against outflows sparked by the risk-off mood: mutual funds bought $16bn of shares this year, compared with sales of about $5bn by their global peers.