The assets under management (AUM) of mutual funds plunged to an 11-month low in June to ₹35.64-lakh crore against ₹36.59-lakh crore registered last August, on the back of sharp mark-to-market losses in debt fund assets. The six=month ban on new fund launches imposed by market regulator SEBI also curtailed fresh collections.

Rising redemptions

The previous low of ₹35.31-lakh crore was logged in July 2021. Overall, redemptions in the last 11 months has increased to ₹9.95-lakh crore against ₹7.37-lakh crore logged in August 2021.

Investors in debt funds have lost ₹2.41-lakh crore or 16 per cent of their investment as the AUM dipped to ₹12.34-lakh crore last month against ₹14.75-lakh crore logged in August due to huge redemption as the Reserve Bank of India (RBI) reversed its accommodative interest rate stand and started increasing key bank rates. In fact, investors have pulled out a whopping ₹1.25-lakh crore from debt funds in the last two months.

Despite mark-to-market losses, equity assets of mutual funds was up 4 per cent at ₹12.86-lakh crore (₹12.33-lakh crore), owing to strong inflow through Systematic Investment Plan (SIP). According to the industry’s anecdotal evidence, over 95 per cent of SIP inflows are in equity schemes. Interestingly, despite the turbulent times, investments through SIPs increased 24 per cent to ₹12,276 crore (₹9,923 crore).

Volatile market

Deven Mistry, Research Analyst, Motilal Oswal, said the adverse macro backdrop, heightened worries on rising interest rates, elevated crude oil prices and liquidity tightening have kept the market volatile and jittery. However, defying all odds, investors continued to invest in mutual funds with strong SIP investments of over ₹10,000 crore for the 10th consecutive month.

The market, meanwhile, closed in the red for the third consecutive month and reported the steepest month-on-month decline since March 2020. FIIs recorded outflows for the ninth consecutive month and pulled out $6.3 billion last month, which was the highest since March 2020. However, domestic inflows remained robust at $6 billion in June and stood at $27.4 billion in the last six months.

Arun Kumar, Head of Research, FundsIndia, said domestic institutional flows tend to fade when markets turn volatile and one-year return becomes weak like now. While strong equity flow in June is a positive for the markets, one needs to keep a close watch on the equity MF inflows and SIP trend in the coming months as they are critical given the backdrop of strong FII outflow, he added.

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