MFs’ wretched run on as assets hit 33-month low

Large-scale redemptions in debt funds by banks and apathy of corporate and retail investors towards equity funds have caused the assets under management (AUMs) of mutual funds to shrink to a 33-month low.

The collective industry AUM dropped Rs88,021 crore, or 13.04%, to Rs587,217 crore in March, as per the latest report released by the Association of Mutual Funds in Indiay.

This is the lowest AUM level since June 2009 when it touched Rs582,679 crore.

Three categories accounted for over 90% of the drop. While liquid funds witnessed the anticipated year-end net outflows of Rs76,537 crore, income and equity funds saw outflows of Rs7,654 crore and Rs196 crore, respectively due to adverse macro factors.

“Apart from short-term debt funds and liquid funds which witness year-end outflows by corporates and banks, there has been substantial redemption in debt funds primarily because of interest rate cut getting deferred,” said Dhirendra Kumar, CEO of Value Research.

“People were expecting the rate cuts to happen sooner, but post the Budget, there has been a sharp rise in yields, leading to decline in prices for debt funds and subsequent outflows,” he said.

The total AUM of income funds, at Rs290,844 crore, is also the lowest in 33 months.

“Since the Budget, fixed income funds have suffered losses, which turned investors off. Also, banks normally pull out at year-end because exposure to mutual funds attracts higher risk weight and full capital adequacy,” said a fund manager at a foreign brokerage house, unwilling to be quoted.

For equity funds, on the other hand, it was the third straight month of net redemptions with the total quarterly outflow, at Rs3,332 crore, being the worst in six.

Experts believe that flows into mutual funds may continue to remain subdued and volatile till the macro conditions improve.

“We have seen extreme volatility in equities and there is no conviction where the markets are headed. In such an environment, flows may not improve till we see markets stabilising and moving up once again,” said N Sethuraman Iyer, CIO at Daiwa Asset Management India.

Kumar expects the mutual fund industry to continue to depend on institutional money, or short term money, which is likely to keep AUMs volatile unless the markets turn around.