A bullish stock market can at times throw up odd situations, like the mutual funds industry in India is facing right now. When the Finance Minister Nirmala Sitharaman made the announcement that the corporate tax is being cut, the markets responded with huge gains in stock prices across the board. Investors used the opportunity to cash-in on their investments in mutual funds since they would have found the Net Asset Value (NAVs) high enough to sell and make some profits. This concept of investors cashing out the profits they’ve made is called Profit Booking.
The end result of this is that the net inflow for the mutual funds was Rs 6489 crore in September, a figure which is the lowest in four months. According to data by the Association of Mutual Funds in India (Amfi), the net inflow figures for mutual funds from May 2019 till August were Rs 4,968 crores, Rs 7,585 crore, Rs 8,092 crore and Rs 9,090 crore respectively.
So, this climb from June to August has been cut short and brought down. The graph may yet climb up again in the coming months.
An interesting factor that has been seen is that the inflows in mutual funds through the SIP route have not diminished. Another significant thing to be noted is there has actually been an increase in the overall asset base of the mutual funds from Rs 7.16 lakh crore to Rs 7.57 lakh crore in September. The broad sense from all this is that the investors who commit large sums to the mutual funds may have pulled their hands back and may be waiting for some better signs in the economy before coming back.
In terms of how this situation has come about, there have been redemptions worth Rs 1,52,000 crore in September. The same figure was just Rs 1.02 lakh crore in August.
Digging deeper, it has been seen that a large part of the redemptions comprised debt-oriented schemes, mainly, liquid funds, such as treasury bills, certificates of deposit and short-term commercial paper instruments.