Inflows into equity mutual funds fell to their lowest in 13 months in March, as investors redeemed funds to avoid the tax on long term capital gains (LTCG) that was effective for transactions done from April 1. Mutual fund participants expect that the volatility in equity markets will continue as India heads into a general election and this they expect will weigh on fresh investments.
Data from Association of Mutual Funds in India (Amfi) shows that equity funds (equity funds and equity-linked saving schemes or ELSS) saw inflows of Rs 6,657 crore in March. This is the lowest monthly inflow into equity schemes since February 2017 when these funds attracted `6,462 crore, according to data from Amfi. Officials in the mutual fund say that there were some outflows from equity schemes, but a large part of the redemptions were in arbitrage funds.
However, even as the total flows into equity funds contracted, inflows into ELSS recorded a 10 year high at Rs 3,703 crore in March 2018. Inflows in March 2017 and March 2016 were Rs 2,906 crore and Rs 1,836 crore.
Swarup Mohanty, chief executive officer of Mirae Asset Global Investments (India said, “The redemptions in the month of March were largely due to the LTCG (long-term capital gains tax) factor, but I would also say that it’s disappointing to see investors redeeming at a time when corporate earnings have started reversing on the upside. I think this is a great market for SIP investors and they should continue to invest in the equity markets.” He also added that this is the right time to do a top-up in SIPs.
In the just concluded financial year ended on March 31, 2018, the mutual fund industry recorded net inflows of Rs 2.72 lakh crore, with equity schemes receiving over Rs 1.71 lakh crore. Balanced funds were next in line with Rs 89,757 crore, followed by ELSS at Rs 14,316 crore. Income funds and liquid funds saw net outflows based on data reflected on March 31. Vidya Bala, head of research at FundsIndia, said, “In the month of January this year inflows were at the peak, but in the month of March high redemptions in equity schemes are a cause of concern. I think investors need to get accustomed to volatility as it’s likely to continue in this financial year.” Officials in the mutual fund industry also say that additions of SIPs have slowed down and this could be one of the areas where mutual fund industry needs to pay urgent attention.