Mutual Funds (MFs) investment data released by the Association of Mutual Funds in India (Amfi) for May 2021 is any indication that one can easily conclude that retail investors’ confidence is coming back to the capital market.

With a net inflow of Rs 10,082. 98 crores, equity-oriented mutual funds witnessed their highest monthly net inflows after Feb 2020, when the segment received a net inflow of Rs 10,795.81 crores. This was the third consecutive month of net inflows for the segment after net outflows for 8 continuous months in 2020-21. Except for the ELSS category, all the equity-oriented categories have witnessed net inflows.

The total assets under management (AUM) of the Indian mutual fund industry have increased from Rs 24.28 lakh crore in May 2020 to Rs 33 lakh crore on May 21. That represents a 35.91 per cent increase in assets over May 2020, while on a month-on-month basis it increased by 2.1 per cent.

“With the net inflows in March, April and May, clearly investors are gaining their conviction back on the equity markets. Significant improvement on the coronavirus situation with daily Covid-19 cases falling consistently, along with improving recovery rate, over the last few weeks, would have provided comfort to investors,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.

Good quarterly results, positive earnings growth outlook over the long-term, and waning concerns of any severe impact of the second wave of the pandemic on the economy would have also boosted sentiments. This would have prompted investors to again allocate assets towards equities, he added.

While the funds mobilised in May were higher than in April, redemption in May fell significantly from April suggesting that investors are fast gaining confidence in the market outlook and are willing to invest substantially.

The multi-cap category was the biggest beneficiary during the month. However, this could be attributed to the launch of Aditya Birla Sun Life Multi-Cap Fund, which garnered assets worth Rs 1,922 crore. Mid and small cap categories also received significant flows. Sector or Thematic funds also continue to receive enhanced traction from investors.

Priti Rathi Gupta, Founder, LXME, India's first Financial Platform for Women, said, “We have seen higher return-seeking even amongst Women on LXME. Savings coming down, and the need to create future wealth is urging them to move money into equities”.

The Gold ETF and Fund of Funds (FoF) investing overseas also saw strong net inflows of Rs 9,331.98 crores. The latest tranche of the sovereign gold bond (SGB) scheme saw record inflows, she added.

Expressing concern over more and more investors investing in international funds in the name of diversifying their portfolio, Aashish P Somaiyaa, CEO, White Oak Capital said, “Investors need to be wary of trend following piling more and more money into developed market technology stocks, which are in the late stages of a multi-year boom.”

If we further dig data related to inflows in the equity segment and into specific schemes, multi cap and mid cap schemes topped the list of net inflows while small cap and flexi caps were right behind. Moreover, contributions from SIP also increased month-on-month, recording Rs 8,818.9 crores against Rs 8,596 crore in April 2021.

Mohit Nigam, Head, PMS - Hem Securities, said, “This kind of consistent numbers looks favourable for the MF industry in particular and the economy as a whole, as it highlights investor's confidence and normalcy taking its hold back in the economy”.

However, withdrawals of Rs 45,447 crore were seen in liquid funds after the addition of odd Rs 41,500 crore in the previous month. This led to a net outflow of Rs 38,602 crore on an overall basis. The total AUM of the industry stands at Rs 33.06 lakh crore, which is higher by 2.1 per cent as compared to the previous month.

DII’s and retail investors have kept the markets buoyant in the last three months when FII’s have been net sellers, therefore the Indian markets have become more broad-based now, with more participants thereby reducing volatility and vulnerability to sentiments of FII’s alone.

Akhil Chaturvedi, Head of Sales & Distribution, Motilal Oswal Asset Management Company, said, “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 market sentiments. Therefore, buying on dips always makes sense and which is reflected in the mutual fund's sales numbers quite positively,” said

After witnessing a robust net inflow of Rs 1,00,903.48 crores in April, debt-oriented categories witnessed significant net outflows to the tune of Rs 44,512.04 crore in May. "This could be attributed to huge net outflows of Rs 45,447.36 crores from the Liquid Fund category and a net outflow of Rs 11,573.01 crore from Overnight Fund categories," said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India

Other funds at the shorter end of the curve (such as Low Duration, Money Market, and Ultra Short Duration) received good net positive flows during the month.

Srivastava of Morningstar said, this also indicates that investors preferred fixed-income funds at the shorter end of the curve, especially in categories with Macaulay Duration between three months to one year, in line with the prevailing interest rate scenario.

After witnessing consistent net outflows, the credit risk fund received a net inflow of Rs 258.26 crore. The improvement in scenario on the fixed income side would have prompted investors to take a calculated risk by allocating some portion of their investments in credit funds.

The Medium Duration category also received net inflows of Rs 407.58 crore, which was higher than the net inflow of Rs 339.64 crores recorded in April. The category has seen improvement in credit profile, which, given the prevalent scenario in the debt markets, would have attracted investors.

Banking and PSU funds again witnessed net outflows this month, which could be a result of the new guidelines around valuations and fund exposure norms for AT1 bonds.