Equity MF inflows hit massive record in August, even as foreigners sell. Where’s the money coming from?

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Updated: September 7, 2017 4:41:32 PM

Equity Mutual funds saw record inflows to the tune of Rs 20,362 crores in August even as Foreign Institutional Investors sold out more Rs 11,000 crores in the month. We take a look at what prompted the Indian investors to pump in such a staggering amount.

rupee, rupee against dollar, rupee per doller, impact of rupee surge, impact of rupee appreciationInvestors pumped in Rs 20,362 crores into equity mutual funds in August. (Image:Reuters)

Mutual fund investing in India has reached unprecedented levels as investors pumped in a staggering Rs 20,362 crores into equity mutual funds in August, taking the tally of the overall industry AUM to Rs 20.6 trillion. Indian investors showed such enthusiasm at a time when Foreign Institutional Investors sold out Rs 11,000 crores in August. The numbers are mind-boggling, given that the investors have put 60% more money than the previous month of July wherein the equity inflows totalled Rs 12,727 crores. Where is all the money coming from?

In conversation with ET Now, Harsh Upadhyay of Kotak AMC said,” The recent cut in interest rates has made investors nervous about returns from bank deposits. That money is now coming into mutual funds.” A long list of banks had slashed the fixed deposit and savings deposit rates in August. SBI cut interest rates to 3.5% for deposits of Rs 1 crore and below. A savings account with Axis Bank will now earn just 3.5% for deposits up to Rs 50 lakhs. Yes Bank has cut rates by 100 basis points to 5% for accounts with balances below 1 lakh. For balances upto Rs 50 lakh, HDFC Bank has cut savings rate by 50 basis points to 3.5%.

In the same conversation, the market expert said,” There is lack of appeal of various other asset classes. Going forward, some of the asset classes such as gold, real estate etc are unlikely to give great returns.”

A report by Deutsche bank last month underscored how the rising component of Systematic Investment Plans (SIPs)  is changing the profile of Indian savings towards equity investments. “The accelerating momentum of inflows into the equity schemes of mutual funds indicates that the financialisation of the domestic savings cycle in India — which began in earnest in 2014 — is becoming deeply entrenched,” Deutsche Bank said in a research note last month. In the last financial year 2016-17, a total of Rs. 43,921 crore was collected through the SIP route. AMFI Chairman A Balasubramanian pointed out in July that almost 85% of this amount is mandated to go to equity funds.

“ We view this as a constructive development, as it incrementally reduces the vulnerability of Indian equities to external developments and also reduces the cost of capital for domestic companies,” the Deutsche bank research report noted.

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