ICICI Securities says that the mutual fund industry AUM rose by 3.7% in February 2021 to Rs 31.6 lakh crore compared to Rs 30.5 lakh crore in January 2021 primarily due to mark to market gains in equity funds as equity market gained further in February. AUM of open ended equity funds is now at Rs 9.63 lakh crore compared to Rs 8.91 lakh crore in January 2021. Equity funds witnessed reduced outflows at Rs 4500 crore in February 2021. Equity funds have seen outflow for the eighth consecutive month now.

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Total outflows in the last eight months have cumulated at Rs 47000 crore. Few investors seems to be booking profit at current higher levels. In debt funds, almost all category of funds except liquid/low duration/money market funds witnessed outflow as rising yields made investors cautious. Corporate bond funds and short term debt funds category remain the highest category in term of AUM at around Rs 1.5 lakh crore. Balanced Advantage or Dynamic Asset Allocation funds AUM is now above Rs 1 lakh crore. The balanced advantage category is gaining popularity as asset allocation funds at current higher level attracting higher investor interest.

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Equity Funds:

Year 2020 has been one of the most volatile years for Indian as well as global equity markets. There was a sharp fall of 40-50% in February and March with an equally sharp recovery since then taking markets to new highs. Equity investors who stuck to their asset allocation plan, and investors who continued their regular investment through SIP mode and otherwise stood out as winners in this extremely difficult year. Sector rotation has also been witnessed in the last one year with the clear winners being IT and pharma delivering around 60% return.

Banking funds have also outperformed in the last six months as the impact of Covid-19 related stress seems to be lower than earlier expected on the banking system. After the initial recovery phase, the broader markets, as represented by the midcap and small cap funds, have outperformed large cap funds category. International funds, after having outperformed for a brief period, have underperformed in the last few months now.
 

Equity diversified funds:

Flows into equity funds witnessed a turnaround in the last seven months. Equity funds, after witnessing consistent inflows in the last four years, have been witnessing outflows in the last seven months. January 2021 saw net outflows of Rs 9253 cr. Total outflows in the last seven months are now at Rs 42000 cr. While retail investors have shown significant maturity by continuing investment at lower levels, few investors seems booking profit as markets recovered. The normalised SIP inflows, however, remained sticky at around Rs 8000 cr.

While outflows in equity funds were secular across categories, multicap funds witnessed higher outflows in the last three months. Midcap and small cap funds witnessed the least outflows in the last few months as their continued outperformance draw investor’s interest. ICICI Securities continue to prefer multicap funds as they offer fund managers flexibility to allocate funds across all market segments, especially in the current market where many smaller cap stocks offer a good investment opportunity. Investors may also consider investing lumpsum amounts in midcap/small cap funds from a long term perspective.