Equity, SIP flows continue to decline in May amid market volatility

After over 14 per cent gains in April, equity markets ended in the red in May.
Equity flows continued to decline in May. The contribution through systematic investment plans or SIPs, also remained on a downward trajectory amid market volatility.  

In May, the 50-share Nifty was down 2.8 per cent after witnessing a strong recovery in the previous month.  

According to the data from Association of Mutual Funds in India, equity schemes garnered net flows of Rs 5,256 crore, 15 per cent lower than the previous month.

“As the markets consolidated after the run-up, investors considered taking money off the table. Also, investors’ appetite to make fresh allocations has reduced,” said D P Singh, executive director and chief marketing officer, SBI Mutual Fund (MF).

The monthly contribution through SIPs, which is used by MF investors to deploy funds on a monthly basis, saw another dip of 3 per cent. In May, these flows stood at Rs 8,123.03 crore, compared to Rs 8,376 crore in April. “From the peak of Rs 8,641 crore in March, the industry SIP book is now 6 per cent lower. It is a matter of concern. We need to figure out the reason for SIP closures. It is understandable if it is because of temporary cash flow issues,” said Swarup Mohanty, chief executive officer of Mirae MF.  
“In the current market, SIP investors can take advantage of rupee-cost averaging,” he said. This was the second month when equity flows and SIP contribution dipped as market volatility took a toll on investors' sentiment. "Since March, the SIP book has contracted by over Rs 500 crore, which can be attributed to a sizeable number of closures in this period. Salary cuts or disruption in monthly income has impacted small businesses, professionals like doctors, commodity traders, and commercial space owners, who had big-ticket SIPs," Amit Bivalkar, director at Sapient Wealth.

Barring large- and mid-cap fund, all equity categories saw a slowdown in flows. For the large- and mid-cap category, the flows more than doubled to Rs 703 crore in May. “Investors continue to prefer large- & multi-cap funds given the market volatility and uncertain economic environment due to the Covid-19 pandemic,” said Kaustubh Belapurkar, director (manager research) at Morningstar India.


The markets were under pressure in May because of a combination of factors. Analysts say concerns over growth outlook, disappointment over the government's stimulus package, and rising Covid-19 cases contributed to weakening sentiments.

After over 14 per cent gains in April, the Nifty ended in the red in May.
On the debt side, credit-risk funds continued to see net outflows, of Rs 5,173.04 crore. However, the figure was considerably lower than the previous month, which saw Rs 19,000 crore of net outflows in light of Franklin Templeton MF’s move to wind-up six of its yield-oriented schemes.

Investors’ aversion to credit risks could be seen from inflows into corporate-bond fund and banking & PSU debt funds. Corporate-bond funds saw inflows worth Rs 3,831.52 crore, while banking & PSU debt fund received flows worth Rs 8,873.35 crore in May. “Investors are looking at safer alternatives. The sentiment towards credit-risk funds has been weak. Between credit risk and duration risk, investors are more open to the latter,” Singh said. In May, gilt funds received flows of Rs 1,947.08 crore. These funds invest in debt papers issued by the central or state government.

Medium-duration funds, which is seen as a credit-oriented category, saw net outflows of Rs 1,519.72 crore. Meanwhile, shorter-duration categories saw positive flows in May after seeing outflows in the previous month. Flows into liquid funds were 10 per cent lower at Rs 61,870.87 crore in May.

Arbitrage schemes saw a 64 per cent jump in flows to Rs 10,806 crore. Experts say the category could see challenges if market volatility continues and future prices trade at discount to cash-market prices. 

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