The net inflow in Indian mutual funds has dropped by two-thirds on a yearly basis to a six-year low in 2018-19 (till February), owing to higher volatility and low yields.
According to data available with the Association of Mutual Funds in India (AMFI), the net inflow into mutual funds in 2018-19 till now stands at a mere Rs 1,32,058 crore, down 59.1% from Rs 3,22,549 crore till February last year.
Mutual fund inflows have consistently dropped for two consecutive years. During the first 11 months of the fiscal year 2017-18, the net inflow into mutual funds had dropped by 18.9% from Rs 3,97,932 crore in 2016-17.
The last time the Indian mutual funds industry saw such a low inflow was back in 2011-12 when it had garnered a mere Rs 61,742 crore.
Analysts attribute the drop to higher risks and lower returns in the mutual funds industry. “The performance of most of them has been mediocre. They somehow have been taking too many risks for too small a return. Also, people are sceptical about the elections and the outcome,” Rahul Shah, vice president – Equity Advisory Group of Motilal Oswal Research said.
According to a report by Motilal Oswal, 84% of the top 25 schemes closed lower on a month-on-month basis in terms of their Net Asset Value (NAV). On an annual basis, in the past one year, out of the top 25 funds, only four have shown positive growth in their NAVs.
Madan Sabnavis, chief economist, Care Ratings believes that the volatility in the Indian stock markets in the past year has also contributed to the low inflow towards mutual funds.
That can be vetted from the fact that income funds, which mainly focus on generating regular income for investors by investing in high dividend generating stocks, government securities, certificate of deposits, corporate bonds, money market instruments and debentures, have seen the worst decline in the inflow in the past year. Between April and February this year, the funds have seen a net outflow of Rs 1,34,981 crore, as against an inflow of Rs 7,868 crore in the corresponding period last year.
Experts believe that people are moving their monies out of mutual funds and towards bank deposits. The Reserve Bank of India data shows that bank deposits have been growing at a very strong trajectory — from 4.1% in the December 2017 quarter to 9% in the current quarter.