MF equity inflows slide 16% on small-cap weakness

The decline in small-cap funds was exacerbated by a stress test highlighting the risks associated with these investments, coupled with a sharp fall in the small-cap index

Mutual fund equity inflows experienced a significant 16% decline, falling to ₹22,633 crore in March. This drop was largely attributed to a loss of interest in small-cap funds, which saw a net outflow of ₹94 crore, a stark contrast to the previous month’s ₹2,922 crore inflow.

Inflows into equity mutual fund schemes were down 16 per cent last month to ₹22,633 crore against ₹26,865 crore logged in February on the back of concern over high valuation.

For the first time in 30 months, small-cap funds registered a net outflow of ₹94 crore last month against an inflow of ₹2,922 crore in the previous month. This comes on the back of a stress test that highligted the risk associated with investing in these funds. This apart, the small-cap index fell sharply last month on profit booking.

Mid-cap funds registered a lower inflow of ₹1,018 crore against ₹1,808 in February.

Investment risk

Venkat Chalasani, CEO of the Association of Mutual Funds in India, said the stress test has helped investors make informed decisions by helping them understand the risk involved in small-cap investments.

While part of the small-cap outflow can be due to portfolio rejig, he added that the small-cap index also fell sharply last month but has recovered ever since.

Thematic funds recorded the highest inflow of ₹7,918 crore in March after five NFOs mopped up ₹3,074 crore. Among hybrids, multi-asset funds got an inflow of ₹2,681 crore (₹4,043 crore).

Melvyn Santarita, Analyst at Morningstar Investment Research, said some leading fund houses have stopped lumpsum investments in small caps and accept investments only through SIPs.

Mid and small-cap categories have the potential to deliver good returns, but investors should have a long timeframe and consider SIP to ride the volatility, he added.

SIP inflows

SIP inflows increased to ₹19,270 crore last month against ₹19,186 crore. In FY’24, SIP inflows have increased 28 per cent to hit a new high of ₹1.99 lakh crore against ₹1.56 lakh crore in FY’23.

The industry’s AUM was down at ₹53.40 lakh crore (₹54.54 lakh crore) in March, largely due to an outflow of ₹1.98 lakh crore from debt funds.

With a unique investors base of 4.45 crore in FY’24, the industry AUM has gone up 35 per cent to ₹53.40 lakh crore against ₹39.42 lakh crore in the previous fiscal on the back of robust inflows and a sharp market rally.

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MF equity inflows slide 16% on small-cap weakness