One-year average returns for core equity categories (excluding international, thematic, and sectoral funds) have ranged between 3.3 per cent and 14.9 per cent, against 3.1 per cent given by the Nifty50 index. Five-year average returns range between 7.2 per cent and 8.6 per cent, far lower than the 45.7-per cent given by the Nifty50, according to Value Research. The paltry returns may have also prompted some investors to move to direct equities.
“Some investors might have booked profits, while others would have moved to debt, given the uncertainty in the equity market. Outflows could also be distribution-led,” said a senior industry executive.
Arbitrage funds, which are part of the hybrid category, but are treated as equity for taxation purposes, may have seen outflows in excess of Rs 2,000 crore in August, according to industry estimates. In July, these funds had seen outflows of Rs 3,732 crore, primarily on account of dwindling returns in the category in the past few months.
Some of the arbitrage money could have moved to ultra-short-term funds in the hope of making capital gains, said Pradeepkumar. The latter has seen robust flows in excess of Rs 15,000 crore in August.
It remains to be seen if the outflows signal the turn of a cycle for an industry that has largely witnessed robust inflows since 2014 or if the contribution from systematic investment plans (SIPs) start to slip as well. SIPs, which have become a favourite route for retail investors to invest in mutual funds (MFs), had slid for the fourth successive month in July to Rs 7,830 crore, down 1 per cent from the previous month.
The MF industry had started to offer an SIP-pause facility to investors a few months ago, which could have had an impact on SIP flows.
The ebb in equity flows, if it continues, may hurt industry profits as fees for managing equity schemes is typically higher than that for debt funds.
It can also hamper domestic institutional flows, the bulk of which have come from MFs.