Small-cap funds see outflows first time in 30 months

Mutual fund flows into small-cap and mid-cap funds took a hit in March after the Association of Mutual Funds in India (Amfi) asked the fund houses to put in place a policy to safeguard investors amid concerns over excessive valuations.

Small-cap funds felt the impact of the regulatory concerns as it saw net outflows for the first time in 30 months. At the same time, large-cap funds found favour with investors as they saw higher inflows compared mid-cap funds for the first time since June 2022.

Overall net inflows into equity schemes in March were down 15.8% from February at Rs 22,633 crores, according to AMFI data. Compared to March 2023, the net inflows were up 10.2%.

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The small-cap funds saw net outflows of Rs 94 crores in March, after having seen inflows of Rs 2,000-Rs 5,500 crores in the previous 15 months. Even the mid-cap funds saw net inflows slide 43.7% month-on-month and 52.2% on-year to Rs 1,018 crores. On the other hand, net inflows into large-cap funds more than doubled both sequentially and on-year to Rs 2,128 crores during the month, according to the data.

“The shift in trend is in line with valuation differentials among large v/s mid and small caps, suggesting that large caps/flexi cap oriented schemes may attract higher flows in the coming months,” said Akhil Chaturvedi, chief business officer at Motilal Oswal AMC.

The Securities and Exchange Board of India had in March raised concerns about build-up of froth in some segments of broader market. Following this, AMFI wrote a letter to fund houses asking them to conduct stress test on smallcap and midcap funds and to limit inflows into these funds.

As of March 31, mutual funds had net AUM of Rs 23.5 trillion in equity-oriented schemes. The overall net AUM, including debt funds, stood at Rs 53.4 trillion. The debt funds saw net outflow of Rs 1.98 trillion in March as against inflow of Rs 63,809 crores in February.

Looking at monthly flows and that too especially quarter ends and year ends may not be ideal way to understand the trends in flows or investor preferences . We all know that shorter end fixed income funds are bound to see disproportionate outflows due to balance sheet build up by institutional investors .  That explains the outflows in liquid funds and shorter end fixed income category in March 2024,” said Madhu Nair, CEO at Union Mutual Fund

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