Thursday, June 24, 2021

Equity MFs hit over Rs 10,000 Cr of inflows in May, highest since March 2020

Equity mutual funds saw inflows for the third consecutive month, with net inflows of over Rs 10,000 crore in May. The scheme recorded inflows of Rs 10,083 crore, which is higher than the net inflow of Rs 3,437 crore seen in April and Rs 9,115 crore in March. Data from the Association of Mutual Funds in India was shown on Wednesday, June 9, 2021.

May inflows into equity mutual funds are on a 14-month high as the scheme has witnessed the highest inflows since March 2020. Earlier, equity schemes saw outflows for eight consecutive months from July 2020 to February 2021. Except for equity-linked savings schemes (ELSS), which saw withdrawals of Rs 290 crore, all equity schemes saw inflows last month.

Inflows across all categories of mutual funds

Category-wise large-cap, mid-cap and small-cap funds saw net inflows for the third consecutive month, while multi-cap schemes turned positive after two months of outflows.

AUM touches all-time high

The Asset Under Management (AUM) of the mutual fund industry rose to an all-time high of Rs 33 lakh crore at the end of May, from Rs 32.38 lakh crore at the end of April.

What is a mutual fund?

A mutual fund is essentially a common pool of money in which investors contribute. This pooled amount is then invested as per the investment objective of the fund.

The money can be invested in stocks, bonds, money market instruments, gold, real estate and other similar assets. These funds are operated by money managers or fund managers, who try to increase or appreciate the amount for the investors by investing in line with the specified investment objective.

For example, a debt fund will have its own specific objective of investing in fixed income instruments or products like bonds, government securities, debentures etc. Similarly, an equity fund shall invest in equity-related instruments including convertible debentures, convertible preference shares, equity shares, equity derivatives and warrants holding the right to acquire such other instruments as may be specified by the Board from time to time.

Some common categories of mutual funds are:

Equity Funds

The main objective of Equity Mutual Fund is to provide capital growth over a medium to long term investment horizon. As per SEBI regulations, an equity mutual fund scheme must invest at least 65% of the scheme’s assets in equities and equity-related instruments. Since the investment is made on equity products, these funds are comparatively high risk.

Debt Funds

Debt funds primarily invest in fixed-income securities such as bonds, securities and treasury bills. They invest in various fixed income instruments like Fixed Maturity Plans (FMPs), Gilt Funds, Liquid Funds, Short-Term Plans, Long-Term Bonds and Monthly Income Plans. They are considered safe investments and provide fixed returns.

Hybrid Funds

These are funds that invest in equity and fixed income securities in the ratio specified in their offer document. The objective of these schemes is to provide both growth and regular income. Generally, the distribution between equity and debt instruments is in the ratio of 40:60. However, these funds are subject to market volatility as equity instruments are part of the investment portfolio.

Money Market Funds

Investors trade shares in the stock market. In the same way, investors also invest in the money market, also known as the capital market or cash market. The government operates this by issuing money market securities such as bonds, T-bills, dated securities and certificates of deposit in collaboration with banks, financial institutions and other corporations. The fund manager invests the money of the investors and in return distributes regular dividends.

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