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More pain may be in store for MFs in June, credit risk funds a casualty

More pain may be in store for MFs in June, credit risk funds a casualty

More pain may be in store for MFs in June, credit risk funds a casualty
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By Sumaira Abidi  Jun 12, 2019 9:01:45 AM IST (Updated)

Flows into mutual funds have revealed another dull set in the month of May. The headline equity figure, which includes equity-linked savings schemes amount, has come in at a shade under Rs 5,000 crore, and that too likely boosted by month-end sales.

Flows into mutual funds have revealed another dull set in the month of May.

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The headline equity figure, which includes equity-linked savings schemes (ELSS) amount, has come in at a shade under Rs 5,000 crore, and that too likely boosted by month-end sales. Remember, this month-end bump-up is after election results, but before the DHFL default. So, some more pain could be in store for mutual funds in June, given that the Essel resolution is also pending.
The Association of Mutual Funds in India (Amfi) started a new way of presenting mutual fund flows last month and this one is quite detailed. So, let's go through the scheme wise break-up.
Clearly, credit risk funds have been a big casualty. Remember, this is the category which has seen the brunt of the defaults, as it invests the majority of its AUM – 65 percent precisely -- in paper-rated double A and below. Low, medium and short durations too have seen outflows as has the dynamic bond category.
So, has any money flown into the debt space at all?
Well, the liquid category has seen an inflow in excess of Rs 68,000 crore, but it's a tad lower than last month and this is mostly, non-retail money. Money market, corporate bond funds and ultra-short duration funds too have seen inflows. Interestingly, the banking and PSU funds are catching traction. The banking and PSU funds provide liquidity, carry low risk and volatility, can generate reasonably stable returns and have been recommended by many of experts over the last few weeks.
In terms of the equity schemes, clearly, the preferance for small and midcaps seems to be apparent, in line with the market sentiment in this period, and the low valuations too. As a result, the highly valued portfolio bets - that is the large caps -- seem to be ceding some ground.
Balanced funds continue to see outflows for the fifth month running. Balanced funds were essentially chosen for its dividend options, but with dividends now getting taxed, they are finding few takers. And here is where it gets interesting. It looks like balanced funds’ loss is the arbitrage funds’ gain, which investors look to favour because of its low risk and tax-friendly nature.
The one redeeming feature for the industry in May though remains that SIP flows continue to hold up, getting in over Rs 8,000 crore this month as well. But if you notice, there is just a slight nick compared to last month. So, one can only hope that in the months to come, this segment doesn't give way, given that most retailers have had their confidence shaken.
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