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mutual funds: HNIs book fat profits in equity in October; park money in debt funds


Mumbai: Rough seas demand abundant caution. It isn’t surprising, therefore, that bulge-bracket local investors who prefer mutual funds to individual stock picking sat out in the run-up to the balloting to choose the next White House occupant, having booked fat profits.

The result? The corpus with equity funds decreased in October – for the fourth calendar month in a row.

Investors withdrew Rs 2,725 crore in October from equity funds, although strong inflows of Rs 1.1 lakh crore into debt mutual funds saw assets under management (AUM) of the industry touch a new record of Rs 28.34 lakh crore.

Inflows into systematic investment plans (SIP) continued to be steady, with such schemes seeing a collection of Rs 7,800 crore compared with Rs 7,788 crore in September.

“Many HNIs have booked profits in equities earlier in September and October, anticipating volatility ahead of the US elections. This money was parked tactically in debt funds and could be back to equities at an opportune time,” says G Pradeep Kumar, CEO, Union Mutual Fund.

Investors have pulled out a total of Rs 9939 crore from equity mutual funds over the last four months.

Total Assets Under Management (AUM) of the equity scheme category was Rs 7.81 lakh crore

Within equity mutual funds, multicap schemes saw the highest outflows of Rs 1,902 crore after Securities and Exchange Board of India tightened investment norms for this category. The regulator on September 11 unexpectedly asked multi-cap funds to allocate at least 25% of their portfolios to large-, mid- and small-cap stocks each, triggering redemptions as investors worried the new norms would hurt performance.

Large caps too saw outflows to the tune of Rs 551 crore. Passive Index funds, most of which are large cap oriented and have low costs, saw inflows of Rs 61 crore. Small cap and midcap funds saw outflows of Rs 1,030 crore. ELSS schemes saw outflows of Rs 274 crore and thematic funds saw inflows of Rs 2,214 crore with money flowing into pharma and IT funds. Fund of funds investing overseas continued to get flows collecting Rs 338 crore.

“Lower risk and higher safety is driving investors to debt funds,” said Raghav Iyengar, Chief Business Officer, Axis Mutual Fund. With liquid fund returns falling to 3-3.5% compared to 5-5.5% a year ago, investors are putting money in other categories.

“Investors looking for higher returns than liquid funds but unwilling to take duration and credit risk are allocating money to short duration bonds,” said Anand Vardarajan, Business Head, Tata Mutual Fund. Several debt fund categories saw money flowing in from both corporates and high networth individuals. Ultra Short and Low duration categories saw flows of Rs 13,654 crore and Rs 9,855 crore, respectively.

Money market, short duration funds saw inflows of Rs 15,445 and Rs 15,156 crore, respectively, while corporate bond funds saw inflows of Rs 15,052 crore.

Hybrid funds that invest in a mix of debt and equity continued to see outflows with balanced funds seeing outflows of Rs 2,391 crore, while arbitrage funds saw inflows of Rs 1,739 crore.

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