Investors continued to book profits from equity funds.
This was evident by the rise in net outflows to the tune of Rs -2,725 crore in October 2020 as compared to an outflow of Rs -734 crore in September 2020. Gross redemptions increased from Rs 17,686 crore in September to Rs 20,239 crore in October 2020.
Equity funds saw net outflows for the fourth month in a row, and the pace of net outflow shot up from the previous month. Since July, equity funds have witnessed a net outflow of Rs 9,939 crore.
“The continued rally in equity markets combined with the expectation of volatility around U.S. elections, appears to have led some investors to book profits in equity and move to short term debt funds. Many of them may come back to equity funds if there is a correction,” said G Pradeepkumar, CEO, Union Mutual Fund.
The Sensex has gained 6% in one month. The Indian indices have closed at a record high today.
“Except for sectoral/thematic funds and large and mid cap fund, all the other equity categories witnessed net outflows in October. The sectoral/thematic category has seen the launch of new funds which got a good response from investors. On the other hand, uncertainty around the multi-cap category could have prompted investors to focus on categories such as large & mid cap instead. Multi cap category continued to witness net outflow for the fifth month in a row and was the worst hit followed by the value fund/contra fund category. The net outflows in October could be largely attributed to profit booking by investors on the back of surge in equity markets,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Advisers India.
The industry launched 11 new funds in October 2020 which mopped up Rs 3,192 crore. Among the thematic category, Aditya Birla Sun Life Special Opportunities Fund and ICICI Prudential ESG Fund launched in October collected Rs 1,806 crore.
Aashish Somaiyaa, CEO, White Oak Capital, advised investors to stay invested to create long term wealth. "The sharp fall in markets in March 2020 would have certainly scared equity investors. Usually even as they may be worried, investors prefer not to withdraw when markets are down but it is quite unfortunate that now when values are being restored we are seeing a large number of investors bolt for the door. Committing to investments on the way up and giving up on investments after a fall is not the way to create wealth. Also, this is not the time to withdraw money from equities because macro conditions portend a new economic cycle, it is for the first time in many years we have seen a quarter where earnings are way ahead of consensus estimates and corporate performance has surprised on the upside."
Debt Funds
The fixed income category received robust inflows of Rs 1.10 lakh crore in October 2020. In September 2020, debt funds saw net outflows of Rs -51,962 crore primarily due to outflows from liquid funds.
Barring long duration and credit risk funds, all other categories of debt funds saw positive inflows in October 2020. Categories like corporate bond funds, low duration, ultra short duration, money market, short-duration funds and banking and PSU funds collectively mopped up Rs 74,716 crore.
Dwijendra Srivastava, CIO – Fixed Income, Sundaram Mutual Fund advises investors to consider investing with a duration of three years. “The monetary policy committee has given assurance of accommodative policy stance for 1.5 years. Investors are moving from lower duration to upper duration funds because of the availability of spread. The liquidity is almost Rs 5 lakh crore in the reverse repo window. This trend will continue for some time until there are some headwinds. No rate rise gives assurance to the markets. Be cautious on duration of more than three years.”
