In August, domestic equity-focused mutual funds received inflows of Rs 21875 crore, the highest ever in any month. These inflows are for pure equity schemes, equity linked saving schemes and equity exchange traded funds (ETFs). These figures show that India is in the midst of a domestic liquidity supercycle, with retail investors flocking to MFs in droves every month. This gush of liquidity has also been aided by lower returns in traditional avenues and the emergence of systematic investment plans (SIPs).
According to AMFI data collated by Value Research, pure equity funds garnered net inflows of Rs 19515 crore in August. ELSS products mopped up Rs 847 crore, while ETFs (non-gold) saw Rs 1513 crore worth net inflows coming in. ELSS are extremely popular due to their tax-saving sops. Retail investors are increasingly investing in MFs through SIPs, which helps them reduce market timing risk and carry out investments regularly. Currently, the MF industry receives about Rs 5000 crore per month through SIPs.
Just in terms of equity schemes, the net inflows in August 2017, at Rs 19515 crore, are over 50% higher than the next biggest month, i.e. January 2008, which witnessed Rs 12717 crore flowing in after the US global financial crisis deeply hurt Indian equities then.
Clearly, the dip in equity markets has not hit buoyant investor spirits. The broader stock benchmark Sensex fell by 2.4% in August. ''The correction in equity markets in August 2017 failed to dampen the spirits of investors as equity mutual funds saw accelerated net inflows in the month. A strong SIP book and 'dip buying' by investors resulted in strong net inflows,' said Rahul Parikh, CEO, Bajaj Capital.
As much as Rs 72544 crore alone has been pumped in form of equity MF net inflows in the eight months starting January 2017. 'By the end of the month (Aug-17), equity mutual fund AUM stood at $111 billion, and as a percentage of market cap it rose to 5.3% - its highest level since July 2000,' said Morgan Stanley equity strategists Sheela Rathi and Ridham Desai.
The domestic flow surge in MFs is happening at a time when National Pension System (NPS) and Employee Provident Fund Organisation (EPFO) are putting in higher allocations to equities compared to historical trends. 'EPFO has raised its equity allocation to 15% in FY18 from 10% in FY17. As per our estimate, EPFO could likely invest Rs 250-300 billion in equities in FY18, of which Rs 57 billion has been invested this year thus far,' Rathi and Desai added.
The Indian MF industry has been witnessing phenomenal growth since 2014, with AUM doubling over the last 3 years. The last three years have witnessed large inflows into equity-focused funds. A rapid rise in the number of new investor accounts, as well as increasing share of assets from smaller cities, have also helped. Plus, the move of money into a more formal economy post-demonetisation has made mutual funds more attractive as an investment avenue.
Here is a list of the 10 biggest months for pure equity MF net inflows
| Month | Inflow (Rs Cr) | Outflow | Net |
| August 2017 | 31079 | 11564 | 19515 |
| January 2008 | 20253 | 7536 | 12717 |
| July 2017 | 26761 | 14724 | 12037 |
| June 2015 | 17391 | 5392 | 11999 |
| July 2014 | 17162 | 6347 | 10815 |
| May2006 | 15538 | 4976 | 10562 |
| April 2015 | 14833 | 4427 | 10406 |
| May 2017 | 22870 | 12662 | 10208 |
| March 2006 | 15983 | 5857 | 10126 |
| May 2015 | 13513 | 3663 | 9850 |
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