Mutual Funds Clock Record Outflow In December (But That’s Not A Worry)

Investors pulled out a record amount of money from mutual funds in December as surplus cash in the system fell at a time when most companies pay advance tax.

The combined net outflow from all schemes put together stood at Rs 1.64 lakh crore, according to industry body AMFI. That compares with a net inflow of about Rs 1.26 lakh crore in the preceding month.

The outflows can be attributed to tighter liquidity and seasonality issues such as advance tax payments during the month, Suresh Soni, chief executive officer at DHFL Pramerica Asset Management, told BloombergQuint over the phone.

Surplus cash with banks—the biggest holders of rupee sovereign debt—was down to Rs 69,800 crore as of Thursday from a peak of more than Rs 5 lakh crore in March, according to Bloomberg Intelligence India Banking Liquidity Index.

That explains biggest redemption pressure in the liquid or money market funds, with an outflow of 1.27 lakh crore in December, followed by income category's Rs 60,151 crore outflow. These schemes mostly invest in short-term debt.

Equities continued to find favour as investors pumped in money for the eighteenth straight month. The net inflows, however, declined nearly 24-percent sequentially at Rs 14,921 crore. That's the biggest drop in six months.

Assets Drop

The total assets under management too fell in December. They were down by around 6 percent month-on-month to Rs 21.37 lakh crore. For the entire 2017, total assets were up 30 percent.

Category wise, money market category schemes reported the biggest decline: down 31 percent to Rs 2.97 lakh crore. The AUM of income funds fell 7 percent to Rs 8.08 lakh crore. Equity assets grew 5 percent to Rs 6.9 lakh crore.

• Balanced fund AUM up 7.9 percent at Rs 1.67 lakh crore.
• The balanced category net inflow up 28 percent at Rs 9,756 crore.

“Outflow during the end of a quarter is a normal phenomenon and nothing too significant though there has been liquidity tightness of late,” R Sivakumar, head of fixed income at Axis Mutual Fund, said. “Expect January and February to be better months.”