MF equity lump sum flows may have slowed down in recent previous, says report

NEW DELHI: There has been a slowdown in enterprise for big mutual fund distributors in the recent previous, with inflows into equity merchandise having weakened, in line with a report by Motilal Oswal Financial Services Ltd. (MOFSL).

The key components behind this slowdown embody a steep correction in equity markets and elevated working capital wants for small companies given the rise in commodity costs, the report mentioned.

Systematic funding plan (SIP) flows, in the meantime, have remained wholesome because the technique of distributors and unbiased monetary advisors have been to focus extra on SIPs slightly than lump sum investments given market volatility.

The findings of the report are primarily based on dialogue of analysts at MOFSL with just a few giant mutual fund distributors–having property below administration (AUM) in extra of 1,000 crore–and institutional gross sales representatives.

As per the report, no main developments have emerged but with respect to redemptions. However, as noticed in the previous cycles, redemptions collect momentum when there’s a sharp bounce again in equity markets.

Further, the variety of SIP closures have elevated in recent previous as clients sourced by the fintech firms had enrolled for SIPs of a lot shorter period – six months to 1 12 months).

“Additionally, many of the clients had been younger college students and therefore to maintain investments each month is a problem for them,” the report said.

The report also highlighted that among high net worth individuals (HNIs), there has been a definite slowdown in terms of inflows into equity funds. The report also noted that HNIs have been preferring longer duration debt funds increasingly, given that the interest rates have been raised by the RBI.

With respect to passives, while retail segment continued to avoid the space, HNIs are increasingly investing in index funds.

Their preference for index funds is based on ETFs that are primarily do-it-yourself as no distributors pitch the same liquidity for ETFs, which is high only for select funds while index funds can be redeemed at fund houses with ease, transaction costs for ETFs, including STT and other charges, reduce the cost gap between the two.

According to the report, HNIs also prefer to invest in alternative assets, such as alternative investment funds (AIFs) and portfolio management service (PMS) products, due to their relatively better returns delivered in the past couple of years. This is despite the high cost the HNIs have to bear when compared with mutual funds.

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