Income schemes continued to witness outflows for the sixth consecutive month in October, when redemption stood at Rs 37,642 crore.
Income schemes continued to witness outflows for the sixth consecutive month in October, when redemption stood at Rs 37,642 crore. Even in September, these schemes had seen outflows of Rs 32,504 crore and in the current financial year, they have seen outflows of over Rs 1.22 lakh crore. Fund managers say outflows from income funds has been largely due to the fear of liquidity crunch in the system and volatility in the debt market.
Apart from income schemes, gilt funds also continued to see outflows, and till October in the current financial year, outflows stood at Rs 3,308 crore, according to data from Association of Mutual Funds in India (Amfi).
Dwijendra Srivastava, chief investment officer (debt) at Sundaram Mutual Fund, says, “In such times of volatility, investors are not willing to take duration risks. There is uncertainty on domestic as well as international front as the Federal Reserve might raise the interest rates going forward.”
He also added that the only comfort for Indian markets was the fall in crude oil prices.
However, liquid and money market schemes saw inflows of Rs 55,296 crore in October. In September, outflows from these schemes stood at Rs 2.11 lakh crore. There were expectations that most part of that money would be back in October. But officials in the mutual fund industry say that lower inflows into liquid and money market is because, several corporates have stayed away from liquid schemes due to the liquidity crunch in the market.
A liquidity scare in the money markets in the wake of the collapse at IL&FS and the inability of a couple of mutual funds to sell NBFC (non banking financial services ) paper has made investors nervous. While companies do withdraw money from mutual funds in September to pay advance taxes, the relatively tight liquidity in the money markets has hurt investor sentiment. Liquid funds invest in debt and money market securities with maturity of upto 91 days only while money market invests in instruments having maturity upto one year.
Nomura, in its report, stated that, “We still worry about the liquidity situation, and think this is more of a medium-term problem, not just a near-term issue. We continue to monitor key company-specific developments to assess the quantum of the problem. While companies have been able to manage liquidity needs so far given the large quantum of maturity of short term paper in November 18, any defaults could potentially trigger another freeze. Commercial Papers (CPs) remains a large proportion of liquid fund AUMs (80% as in September 18), hence we think near-term risk still is not completely eliminated.”