A steep fall in net inflows into equity mutual funds was witnessed in April 2023. According to data released by the Association of Mutual Funds in India (AMFI), the net flows into equity mutual funds declined from Rs 20,534 crore in March 2023 to Rs 6,480 crore in April 2023.

Data shows that Large Cap Funds were hitting the most, witnessing a drop from Rs 911 crore in March to just Rs 53 crore in April. However, net inflows into small and mid-cap funds remained relatively stable at Rs 2,182 crore and Rs 1,782 crore, respectively – compared to Rs 2,430 crore and Rs 2,128 crore respectively a month ago.

Explaining the possible reason for a steep fall in net inflow into equity mutual funds, Mayank Bhatnagar, Chief Operating Officer, FinEdge, said, “The 68% drop in month-on-month inflows can be attributed to ‘profit booking’ actions stemming from the lack of patience due to the extended lull in the market, and not having a goal-backed long term return expectation in mind while investing.”

Once again, we are witnessing a repeat cycle of high retail participation at the point of maximum financial risk, and low participation at points of maximum financial opportunity such as the one we are sitting on today. Interestingly, high retail outflows have traditionally signaled trend reversals, so we may well be close to the bottom of the time correction that we have been in since October 2021, he added.

Also Read: What to do if your Mutual Fund SIP has given less than Fixed Deposit return in 1 year?

According to Manish Mehta, National Head of Sales, Marketing & Digital Business at Kotak Mahindra AMC, investors probably took a wait-and-watch approach to allocate additional investments to equity in April while continuing with their existing SIPs.

Despite a fall in net flow into equity mutual funds, the number of new SIPs registered in April was 19,55,569. Moreover, the SIP Asset Under management (AUM) increased to Rs 7,17,175.88 crore in April from Rs 6,83,296.24 crore in March. The month of April also witnessed the launch of 9 new schemes in the open-ended category, raising Rs 1828 crore.

Gopal Kavalireddi, Head of Research at FYERS, said that the noticeable underperformance of mid and small-caps during the earlier months prompted investors to choose these categories for continued investment, with Rs 4000 crore of net flows.

“With equities, gold and fixed-income investments performing well, multi-asset allocation funds from the hybrid mutual fund category drew inflows of Rs 445 crore, the second largest inflow after arbitrage funds. Systematic Investment Plan (SIP) flows were marginally lower at Rs13,728 crore but are above the Rs 13,000 crore mark for the seventh consecutive month,” he said.

What should SIP investors do?

Industry experts say that investors should not be worried too much about the fall in net flow into mutual equity funds last month and they should continue with their SIPs.

Historically, April is a relatively quiet month after the hectic activity in March. So not too much should be read into the net flows being lower compared to March. We are confident that the momentum will pick up in the coming months,” said G Pradeepkumar, CEO of Union AMC.

Also Read: SIP return calculation: How long will it take to reach Rs 2 crore?

Adding to the above, NS Venkatesh, Chief Executive at AMFI said, “Investors must stay invested for the long term without getting swayed by market movements. Time spent in the market is the key rather than timing the market.”

Nifty 50 index rose by 4.06 per cent in April after a lacklustre performance between December and March. Kavalireddi said he is expecting that May could follow the previous month in delivering good returns to investors.

With the continued support of FIIs (Rs.12,265 crore inflow in just eight trading days) and retail, May could follow the previous month in delivering good returns to investors. While the Q4 earnings season is underway, with some companies continuing to experience lower demand and pricing pressure, the uptick is visible across many sectors, Kavalireddi said.

“With many stocks trading at reasonable valuations, interest rate cycle tapering and a fresh capex cycle on the way, Corporate India is in the throes of excellent earnings growth in the second half of FY24. Investors should continue their SIPs, opting for equities and other asset classes based on their goals and risk profile. Investors with aggressive risk profiles and a 2-3 year horizon can take advantage of the current scenario by continuing their SIPs in mid and small-cap funds,” he added.

(Disclaimer: The views expressed above are the personal opinions of the respective commentators. Mutual Fund investments are subject to market risk. Please consult a certified financial advisor before investing)

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