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Should investors be worried about the downward trend in mutual fund inflows?

Dhirendra Kumar advises investors not to be carried away by the noise in the market and stay put with their investment objective.

AMFI June 2020 monthly data shows a significant downward trend in mutual fund inflows in both equity and debt funds. Is this an indication of caution? Should retail investors worry and redeem their investments?
- Fida

Retail investors should largely be unaffected by any trend in the flow of mutual funds irrespective of its direction. Rather, they should focus on why they are investing and when they need the money. Another thing that should matter to them is if the decline in the market is making them anxious. If you are extremely anxious about a market fall, then you probably need to trim your equity allocation a bit and add fixed income to your portfolio, which will help you have stability in the portfolio.

With regard to the AMFI data on mutual funds flows, the net flows for June stood at Rs 7265 crore as compared to Rs 70,813 crore for May. This massive decline in net flows is observed at the end of each quarter as companies and individuals tend to pull out a lot of money, which they parked in liquid funds, for advance tax payment. This is a phenomenon that you will observe at the end of March, June, September and December every year and should not be of concern to you.

The net inflow in open-ended equity funds stood at Rs 241 crore for June as compared to Rs 5256 crore for the previous month. While this is a major decline, investors pulling out money as the market recovered significantly from its lowest in March is also a reason for this. While delving deep, you will find that the money is still coming in across categories and FIIs that had been pulling out money for the past two months are now investing again. So, the scenario is not that bad.

Like I said earlier, all this is just noise. What matters the most is your vision for investment and how anxious you are by the ups and downs of the markets. Don't get carried away by all this noise. If you have a long-term duration for investment in hand, stay invested in a good equity fund that has been consistently doing well and has fallen substantially less in the falling market. Stay put and you shall benefit.

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