Inflows into equity MFs rose in February but not because more money came in. Here’s why

Net inflows into domestic equity mutual funds rose in February on a sequential basis after falling in the first month of the new year. This bodes well for the equity markets as this can counterbalance the activity of offshore investors, who are divesting their holdings to look for safe haven in the developed markets and in particular the US.

However, the picture is not all that rosy. If one digs deeper, it shows the actual inflows have been almost flat and the rise in net inflows—or the balance after factoring out redemptions by unit holders—is due to a muted selling activity.

Net inflows last month rose to Rs 19,705 crore from Rs 14,888 crore in January, the latest data shared by industry body AMFI shows.

But the fresh funds mobilised under equity mutual fund schemes was almost flat at Rs 33,777 crore in February compared with Rs 33,234 crore in the previous month. The difference lies in the redemption value, which declined to Rs 14,072 crore from Rs 18,346 crore.

Benchmark indices had hit a high again in mid-January and had given up some of the gains in February before the Russia-Ukraine war broke out a couple of weeks ago leading to a more aggressive stock selloff around the world.

Inflows

Flexi cap, thematic and sectoral schemes that target large-cap stocks continued to be the three prime drivers of fresh mobilisation in the equity-oriented mutual funds in the country. These three categories absorbed around half of the total money flowing into mutual funds in February.

Beyond these three, mid-cap, small-cap and focused funds were the other key categories in January but it seems investors switched their preference from small-cap to funds that chase large and mid-caps in February while maintaining the flow of money to the other two segments.

If we gauge the segmental activity by folio addition, however, small caps led the charts with nearly 3 lakh new folios in the month compared with the previous month. Sectoral and thematic funds followed by flexi-cap funds were next in the charts in terms of folio addition.

Outflows

For redemptions, too, flexi cap, thematic and sectoral funds and schemes that target large-cap stocks continued to be the top three in terms of unit sale.

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