Mutual Funds Outpace Turbulent Markets!

Mutual funds record inflow

Mutual Funds outpaced market turbulence and hit record inflows! What fueled the sudden boost? Let’s find out.

As the first quarter of 2023 came to a close, the equity mutual fund category experienced an impressive surge in investor inflows, with a staggering Rs 20,534.21 crore pouring in during March. 

Moreover, all equity categories enjoyed a boost in popularity, indicating a growing appetite for market participation.

There were a few types of mutual funds which enticed investors last month. 

According to Economic Times, sectoral or thematic funds took the lead with a significant inflow of Rs 3,928.97 crore, closely followed by dividend yield funds, which raked in Rs 3,715.75 crore. 

Meanwhile, the debt category saw a total outflow of a whopping Rs 56,884.13 crore recorded in March, with liquid funds taking the biggest hit, followed by money market funds. 

But, we have seen this massive surge amidst the volatile markets, leaving investors to wonder about the main cause behind this shift in trend.

What Exactly Fueled This Sudden Boost?

It appears that two key factors were primarily responsible for driving equity fund flows: the surge of Systematic Investment Plans (SIPs) and the positive response to New Fund Offerings (NFOs).

One standout NFO was the SBI Dividend Yield fund, which raised an impressive Rs 3,496 crore, making it a primary contributor to the surge in equity fund inflows. Additionally, the Equity-Linked Saving Scheme (ELSS) for tax saving gathered significant interest among investors.

However, the real highlight of this surge was the remarkable SIP inflows, which totalled an impressive Rs 14,276 crore. The massive rise of SIPs undoubtedly played a major role in driving equity fund flows in March 2023.

Why Did Debt Funds Feel the Heat?

The debt fund category witnessed a net outflow of Rs 56,884 crore in March 2023, which is not entirely surprising given that this was the last month of the fiscal year. Major sell-off was evident in liquid funds and money market funds, etc. 

However, despite the overall outflows, a few categories within the debt fund space saw significant inflows as well. These categories were corporate bond funds, banking & PSU funds, dynamic bond funds, and gilt funds. 

The recent inflows were likely the result of a strategic move by HNIs to capitalise on the favourable LTCG tax benefits before the start of the new financial year. This move was motivated by the recent amendments to the Finance Bill, which eliminated the LTCG tax benefits and indexation for fresh investments in debt mutual funds, effective 1st April 2023. As a result, investors who made debt investments before 31st March were able to take advantage of the earlier, more favourable taxation regime.

What’s Next?

In the coming months, the impact of the changes to the finance bill on the debt fund category will likely cause a slowdown. Given the current trend of substantial SIP inflows and volatile market conditions, it will be interesting to see how the mutual fund industry performs overall. 

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious.

*Funds mentioned in the article are for informational purposes. This is not investment advice.

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