The latest Mutual Fund data by Association for Mutual Fund in India (AMFI) shows the net inflows in Gold ETF and Fund of Funds investing overseas in August were negative. The net flow in index funds was Rs 7788.23 crore. In an email interaction with FE PF Desk, Gopal Kavalireddi, Head of Research at trading platform FYERS, shared what these numbers mean for investors. Excerpts:
Are investors not interested in Gold ETFs and the Fund of Funds investing overseas?
After a net flow of Rs 1438 crore into Gold ETFs in the April-June 2022 quarter, July and August months witnessed an outflow of Rs.495 crore collectively. Traditionally, investments in gold are considered for the purpose of hedging against inflation. Now with inflation showing signs of abatement and with economic growth on a better footing in India, investors are opting for riskier investments.
The same trends can be observed in Fund of Funds (FoFs) too. After positive net flows of Rs.937 crore between April – July 2022, this segment saw its first net outflows at Rs.97.9 crore in August. The reasons are clear. The Indian stock market has outperformed most global peers and delivered positive returns. While the rest of the world, especially the US and Europe are debilitated by high inflation, rising interest rates, geopolitical tensions, diminishing liquidity and thereby fears of lower economic growth, India remains a bright spot for investors.
What is the trend for index funds?
AMFI data on index funds shows that this category has seen a net inflow of Rs.33,653 crore in the current financial year and Rs.56,629 crore a year to date. With Indian markets remaining volatile and going through a time and price consolidation, investors reduced their exposure to individual stocks and opted for index funds, mostly through Systematic Investment Plans (SIPs).
Rs.6730 crore has been the average inflow since April 2022 and it is expected that this trend will continue, till the markets complete their consolidation and enter into a new leg of uptrend.
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Why are investors preferring liquid funds over interest rate fixed income schemes?
Over the last 1-year, the interest rate cycle reversed in India and in many countries across the world. With low savings and fixed deposit interest rates, investors were effectively ending up with a negative rate of return on the back of higher inflation. Now, with inflation tempering and interest rates rising continuously, investors are opting for liquid funds in comparison to fixed interest rate instruments. This changeover is expected to continue till the end of the current rate hike cycle.
Also, with quarter-end approaching, most investors and institutions park their surplus money in liquid funds, to pay advance tax. Hence, liquid funds have witnessed an inflow of Rs.50,095 crore in August, in comparison to the outflow of Rs.7692 crore in July.
(Disclaimer: Mutual funds are subject to market risks. Please consult your financial advisor before making any investment decision)