Mutual funds rake in 'opportunistic flows' as market mood improves

A buoyant equity market, coupled with an improved performance of mutual funds (MFs) on the returns chart, has heightened retail investors’ appetite for equities.

In the past few months, equity MF schemes have seen a surge in fresh investments through both lump sum (one-time investments) and systematic investment plan (SIP) routes.

During the August-September 2023 period, equity MF schemes recorded net lump sum investments of Rs 35,270 crore, compared to just Rs 5,550 crore in the previous three months, according to data from the Association of Mutual Funds in India (Amfi).

Net SIP investments in equity schemes increased from Rs 13,100 crore to Rs 18,650 crore in the same period.

While SIP flows are considered agnostic to market conditions, lump sum investments are highly correlated with the prevailing market sentiment.

Lump sum inflows, unlike SIPs, are mostly opportunistic in nature due to the timing involved in such investments, say industry executives.

They add that the majority of such flows come from high networth individuals.

"Lump sum is market sentiment-driven to a certain extent, especially during phases like now when the market is volatile.

"Longer-term investments mostly come through SIPs.

"In addition, lump sum flows are also correlated with new fund launches and the initial collections they make,” said Jimmy Patel, managing director and chief executive officer of Quantum MF.

New fund offers (NFOs) in the active equity space collected Rs 10,500 crore in the August-October period, compared to Rs 6,220 in the preceding three months.

“The surge in lump sum inflows has come on the back of improved MF performance and a risk-on sentiment in the market.

"With the equity market remaining buoyant since March, investors see this as an opportune time to deploy cash, especially those who were waiting on the sidelines for some time,” said Amit Bivalkar, founder, Sapient Wealth Advisors.

The ongoing market rally, which started in March, has led to significant gains for equity MF schemes.

At the end of June, all domestic equity schemes, except for information technology sector funds, had delivered double-digit returns in the one-year period.

In 2023-24, or FY24 (until the end of October), the National Stock Exchange Nifty50 had risen almost 10 per cent, while the S&P BSE Sensex was up 8.3 per cent.

The rally was far more pronounced in the midcap and smallcap space. In the same period, the Nifty Midcap 100 and Nifty Smallcap 100 indices were up 29 per cent and 41 per cent, respectively.

Due to the divergence in performance, the bulk of the flows in FY24 have gone into smallcap and midcap funds.

In the first seven months of the ongoing financial year, smallcap schemes have accounted for one-third of the total net inflows into equity schemes.

They have raked in a net of Rs 25,500 crore during the seven-month period. Sectoral schemes have received the second-highest flows at Rs 14,180 crore.