Assets under management (AUM) of the mutual fund industry have hit an all-time high as investors continue to put in money into debt funds and falling yields help in appreciation of existing investments.
At the end of January, the industry AUM stood at Rs826,155 crore, surpassing the previous high of Rs821,659 crore clocked in November 2009.
The downward trajectory in 10-year government security yields and expectations of more rate cuts next fiscal helped gilt funds get net inflows of Rs1,145 crore – the highest in 51 months and the fourth consecutive month of near-four-figure inflows.
Dwijendra Srivastava, head - fixed income at Sundaram Mutual Fund, said the flows into gilt funds started quite early on expectations of rate cuts and that HNIs and corporates continue to put money into gilt and long-duration funds as they expect a series of 25 bps rate cuts.
“This has a bearing on the yields that have come down drastically over the last three months and the resultant appreciation in prices of these funds. Also, some of the mutual fund houses have done away with exit loads on gilt funds, which has removed constraints for investors and they can easily redeem whenever they see appreciation,” he said.
Income funds saw inflows of Rs17,281 crore, while their AUMs surged by Rs20,346 crore in January. Equity funds, meanwhile, continued to see heavy redemptions for the eight consecutive month as investors preferred to book profits with the Sensex rising above 20000. This led to net fund outflows of Rs2,501 crore from growth funds and Rs189 crore from equity linked saving schemes.
Going forward, experts see debt funds attracting more flows on favourable interest rate cycle.
“Investors are capitalising on downward changes in interest rates. Hence, going forward also we see more inflows into gilt, dynamic and income funds. Interest in fixed income has been rising. As there will be a correction in the equity market, investors’ focus will turn into such funds,” said Navneet Munot, chief investment officer, SBI Mutual Fund.