Equity mutual funds see increased redemptions; profit booking, shift to direct investing aid outflows

Equity mutual fund investors booked profits in the month of November as Sensex and Nifty surged to fresh highs, resulting in the most outflows from equity oriented schemes so far this fiscal year. In the previous month, equity oriented mutual fund schemes saw net flows of a massive Rs 12,917 crore, data from Association of Mutual Fund Investors (AMFI) showed. Experts believe that the outflows are a result of profit booking after the strong rally of the recent months has jacked up stock markets. Overall, mutual funds saw net inflows of Rs 27,194 crore in November against inflows of Rs 98,575 crore in the previous month.

The increased redemption is also owing to the run in midcap and smallcap stocks in recent months. “All investors who were stuck in small and midcap stocks have also come out with some profits after recouping the principal amount,” Omkeshwar Singh, head-RankMF, Samco Group told Financial Express Online. Stock markets have rallied, aided by strong foreign flows and some investors do fear that the market has been pushed higher making them uncomfortable, according to Omkeshwar Singh. Hybrid funds saw outflows worth Rs 5,249 crore in November of which the largest outflows are from Balanced hybrid funds which, Omkeshwar Singh said, are dominated by equity.

However, despite the large redemptions, some experts believe that investors have not completely given up on equities. “All of these outflows would not have gone completely out of equities as an asset class, but probably moved to direct equities as investors have had some successes in past few months investing directly, some part of this liquidity could have also flown to real estate with renewed interest amongst genuine buyers wanting to own home at lower interest rates and falling taxes and prices,” said Akhil Chaturvedi, Associate Director & Head of Sales, Motilal Oswal. He added that some investors could also be holding on to cash to deploy the same after any meaningful correction. 

Among equity schemes, multi cap fund investors saw outflows worth Rs 2,842 crore while large cap funds recorded outflows of Rs 3,289 crore. All ten equity oriented fund categories saw outflows in the month of November. In the month of October the outflows were only at Rs 2,724 crore. With this equity funds have now seen five straight months of net outflows despite the stock market scaling to fresh record highs.

In the debt fund category, net redemptions were seen only by investors of overnight funds, liquid funds, and credit risk funds in the previous months. Overnight funds recorded redemptions of Rs 15,547 crore against inflows of Rs 4,940 crore in October. Rs 8,415 crore worth of outflows were seen among liquid funds against Rs 19,582 crore of inflows in the previous month. Net inflows to debt oriented schemes in October was at Rs 44,983 crore.