Net inflows into open-ended equity mutual funds (MFs) saw a 28% jump in January over December, data from the Association of Mutual Funds in India (AMFI) showed on Thursday.
In another feather in the cap for the industry, SIP (systematic investment plan) contributions crossed the Rs 18,000-crore mark for the first time to scale an all-time high of Rs 18,838.33 crore.
Equity funds saw net inflows of Rs 21,781 crore in January, up from the Rs 16,997 crore in December. This was powered by a strong Rs 3,256.98 crore net inflows into small-cap funds, Rs 4,804.69 crore into sectoral/thematic funds, and Rs 3,038.67 crore in multi-cap funds.
“Both the mid-cap and the small-cap indices have seen a sharp rally over the last six months and one year. Investors should note that while both the mid-cap and small-cap categories have the potential to deliver good returns, they are inherently volatile with sharp drawdown risks,” said Melvyn Santarita, analyst, Morningstar Investment Research India.
Debt funds saw net inflows of Rs 76,468.96 crore, mainly on account of near-Rs 50,000 crore inflows into the liquid category, compared to Rs 75,500 crore in net outflows last month.
“The inflows into the corporate bond, long-duration, gilt, and long-to-medium duration categories confirm that investors are now taking bets in these categories, fuelled by growing anticipation of interest rate easing,” said Nehal Meshram, senior analyst – manager research, Morningstar Investment Research India.
Though small-cap funds garnered more than Rs 3,000 crore of net flows for the fourth consecutive month, the quantum was lower by Rs 600 crore on a month-on-month basis. Interestingly, fund flows into the large-cap category at Rs 1,287 crore, which was at the highest level in 19 months. This came following a withdrawal of Rs 281 crore in December.
“With midcaps at 15 per cent and small caps at 20 per cent premiums, investors are realising the considerable valuation gap with the large-cap segment, and accordingly making adjustments to their investments,” Gopal Kavalireddi, Vice President of Research at FYERS, said.
Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC, said that large-caps demonstrated positive contributions in January, reversing the net outflows experienced in December 2023. This shift in trend is in line with valuation differentials among large v/s mid and small caps, suggesting that large caps/flexi caps oriented schemes may attract higher flows in the future.
Overall, the mutual fund industry has witnessed an inflow of Rs 1.23 lakh crore in the month under review as compared to an outflow of Rs 40,685 crore in December. This huge inflow was driven by contributions from debt-oriented schemes at Rs 76,483 crore, hybrid schemes at Rs 20,637 crore along with equity schemes.
The strong inflow pushed the mutual fund industry’s assets under management to Rs 52.74 lakh crore in January-end as compared to Rs 50.78 lakh crore at the end of December.
The quantum of net flows in gold ETFs saw a sharp uptick to Rs 657.4 crore in January from Rs 88.3 crore in December. Index funds, too, saw Rs 2,987 crore in inflows, compared to Rs 703 crore in December.
Experts say the appeal of gold as a safe haven and hedge against inflation will continue, given the ongoing geopolitical tensions, and inflationary pressure in the US. Gold prices touched new highs after surpassing the $2,100-per-ounce mark in December, but have since cooled.
“In rupee terms, gold has done fairly well over the last year, but pales in comparison to how equities have fared. Given this backdrop, flows in the gold ETF category have been somewhat patchy. Some investors could be choosing to opt for a risk on approach to investing with the anticipation of a reversal in rate cycle going ahead,” said Santarita.