However, mid-cap schemes continued to take in money with the month’s net inflow at Rs 1,018 crore. A clear trend about investors’ preference for safer haven schemes – small-caps to other less-risky plans – could emerge only in about 3-4 months, mutual fund distributors said.
At Rs 5,472 crore, small-cap funds had recorded the biggest net inflow ever in June 2023. Before March 2024, the last monthly net outflow was recorded in Sept 2021 at Rs 248 crore, the data showed.
In early March, Sebi, had told fund houses through Amfi that it was concerned about the unabated run in mid and small-cap stocks and asked them to tighten their investing processes related to these categories of schemes. It asked fund houses, for the first time, to do a stress test for these types of schemes to see how long they would take to liquidate a major part of their portfolios in these schemes, in case any unusual situation forced them to do that. Sebi’s warnings related to mid and small-cap stocks were mainly based on concerns over high valuations of these stocks.
For several investors, this was a warning sign to be on the guard and some shifted their money out of small-cap funds and into other types of equity schemes that are perceived to be less risky.
“We witnessed investment rebalancing where investors seem to have moved from small-cap schemes to large-cap,” said Manish Mehta of Kotak Mahindra MF.
Amfi data for the month also saw a small uptick in gross monthly flows through the systematic investment plan route. At Rs 19,271 crore, it was the highest ever, surpassing Rs 19,187 crore taken in in Feb this year.
The month also witnessed a marginal, 2% decline in total assets under management: From Rs 54.5 lakh crore in Feb to Rs 53.4 lakh crore in March. The dip was attributed to mainly the outflows from overnight and liquid funds, which together saw net outflow of Rs 1.6 lakh crore.
According to Union MF CEO Madhu Nair, shorter-end fixed income funds are bound to see disproportionate outflows due to balance sheet build-up by institutional investors during the quarter and financial year-end. “That explains the outflows in liquid funds and the shorter-end fixed income category in March 2024. These flows also come back immediately after the quarter-end,” Nair said.