Small and mid-cap funds record net inflows in August, SIPs hit a record

• Small-cap funds emerged as a clear favourite, attracting substantial inflows of ₹4,265 crore in August.
• After witnessing net inflows of ₹61,440 crore in July, debt mutual funds recorded net outflows of ₹25,873 crore in August.
• August 2023 witnessed SIP inflows surging to a record new high of ₹15,810 crore.

In August, there was a surge in net inflows into equity-oriented schemes, reaching a five-month peak at ₹20,245 crore. This marked a substantial increase from the ₹7,626 crore recorded in July, as reported by the Association of Mutual Funds in India (AMFI).

According to ICRA analytics, equity investments experienced inflows during August, partly due to a slight decline in the Nifty index. This dip served as a consolidation phase and created an attractive opportunity for value-oriented investors. Furthermore, there has been a growing trend of increased inflows from individual investors in this period.

Small-cap and mid cap funds still going strong

Among equity-oriented mutual funds, August witnessed varying patterns of investor sentiment. Small-cap funds emerged as a clear favourite, attracting substantial inflows of ₹4,265 crore, reflecting investors' eagerness to tap into the growth potential of smaller companies, albeit with a higher risk profile. Meanwhile, mid-cap funds followed suit, garnering significant interest with inflows amounting to ₹2,512 crore.

However, the large-cap funds witnessed net outflows of ₹349 crore. Focused funds and ELSS funds also experienced outflows of ₹471 crore and ₹27 crore, respectively, during this period.

Debt mutual funds witness net outflows

After witnessing substantial net inflows of ₹61,440 crore in July, there was a reversal as debt mutual funds recorded net outflows amounting to ₹25,873 crore. Major outflows were observed across nine out of the sixteen fund categories.

Several factors contributed to this shift in investor behaviour. First and foremost, as the festive season approaches, concerns regarding rising inflation loom large. Investors also closely monitored the RBI's policies, given the central bank's commitment to maintaining a vigilant stance on inflation, akin to Arjuna's unwavering focus in the epic Mahabharata.

Investors continue to park their money in mutual funds

Overall, investors continued to exhibit a strong interest in mutual funds, displaying a consistent pattern of inflows and contributions, particularly through systematic investment plans (SIPs). August 2023 witnessed SIP inflows surging to a record new high of ₹15,810 crore.

This represented a substantial 3.7% increase when compared to the previous month, and it showcased an impressive year-on-year growth rate of 24.6%, according to Indian Mutual Fund Tracker by Motilal Oswal Financial Services.

The total assets under management (AUM) of industry increased by approximately 19 percent, reaching ₹ 46.63 lakh crore by August 31, 2023, compared to ₹39.33 lakh crore on August 31, 2022, as per ICRA Analytics. During the same period, the industry's average assets under management (AAUM) for August 2023 amounted to ₹46.93 lakh crore, up from ₹39.53 lakh crore in August 2022.

Says Ashwini Kumar, Head Market Data, ICRA Analytics, “The Indian equity markets has been witnessing a rally backed by upbeat domestic macroeconomic data, a sense of optimism around India’s growth prospects and positive global cues. This rally in equity markets might have prompted investors to look at equity-oriented schemes.”

Furthermore, it appears that investors are taking a cautious stance, waiting to see how the situation regarding interest rates unfold, which may have resulted in a higher volume of withdrawals from debt schemes.