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Explained: Why Equity Mutual Funds witnessed Rs. 10,000 crore inflow in May 2021?

Arfa Javaid

At a time when the country is facing its biggest health crises, the mutual fund industry boomed, witnessing a 14-month high since March 2020. While some experts believe that the markets are delinked from the realities of the economy, others consider it as an impression of optimism about the future. 

Equity mutual funds witnessed a net inflow of more than Rs. 10,000 crores in May 2021, the third consecutive monthly infusion. On the other hand, investors pumped over Rs. 1 lakh in April 2021 and pulled out Rs. 44,512 crores from debt mutual funds.

As per the data released by the Association Mutual Funds in India, Equity mutual funds witnessed a net inflow of Rs. 3,437 in April and Rs. 9,115 in March 2021. Earlier, equity schemes witnessed outflows for eight months continuously from July 2020 to February 2021. 

Overall, the mutual fund industry witnessed an outflow of Rs. 38,602 crores across all segments during the period under review, compared with an inflow of Rs. 92,906 crores in April 2021. As per the data, inflow from equity and equity-linked open-ended schemes stood at Rs. 10,083 crores in May 2021. 

Apart from Equity Linked Saving Schemes (ELSS) which saw a withdrawal of Rs. 290 crores, all other equity schemes have seen inflow last month. Additionally, Gold Exchange Traded Funds (ETFs) witnessed a net inflow of Rs. 288 crores in May 2021 in comparison with Rs. 680 crores in April 2021.  

The Assets Under Management (AUM) of the mutual industry rose to an all-time high of Rs. 33 lakh crores in May 2021 from Rs. 32.38 lakh crores in April 2021. 

Reasons behind the Equity Mutual Funds rise despite COVID-19 surge in India

1- Decline in active COVID-19 cases and the possibility of economic revival. 

IE quoted Akhil Chaturvedi, Head of Sales & Distribution, Motilal Oswal Asset Management Company as saying, "Broadly, we understand from the first wave of Covid that these waves will be short-lived and eventually economic activities will revive, giving a boost to the market sentiment. Therefore, buying on dips always makes sense, which is what is reflecting in the mutual fund sales numbers quite positively."

2- Investors diverted their higher savings that accumulated due to lower spendings. 

"Investors who have accumulated higher savings in the last year due to lower spending and were staying on the sidelines are slowly coming back. The strong returns in equities and the stability of the markets despite the second wave provide the much-needed positive nudge," IE quoted Arun Kumar, Head of Research, FundsIndia. 

Amid the second wave of COVID-19 pandemic, the centre didn't announce nationwide lockdown, which in turn, did not fully derail the economic activity in India. Also, the optimism around vaccination and the continuation of economic activity has led to people slowing down on redemptions.

What is a Mutual Fund?

It is a type of financial vehicle consisting of a portfolio of stocks, bonds, or other securities. It gives investors access to diversified, professionally managed portfolios at a low price. 

Types of Mutual Funds

There's a mutual fund for nearly every type of investor. These are mentioned below:

1- Equity Funds
2- Fixed-Income Funds
3- Index Funds
4- Balanced Funds
5- Money Market Funds
6- Income Funds
7- International/Global Funds
8- Specialty Funds
9- Exchange Traded Funds (ETFs)

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