In the month of July 2020, fresh investments into equity mutual funds are down to about Rs 14,800 crore. This number is not particularly low - in fact it is slightly higher than last month as well as the month before that. However, the amount of money that was redeemed from such funds was much higher than previous months and the net result was that there was a net outflow of Rs 2500 odd crore from equity funds.
To put this in context, the total amount of money that is being managed in equity funds is Rs 9.5 lakh crore and this net outflow was thus 0.29 percent of that amount. Somewhat confusingly for those not accustomed to these numbers, the total amount went up sharply. That's because although Rs 2500 crore was redeemed by investors, the equity markets went up sharply during the month and thus investors wealth grew by Rs 50,000 crore.
All in all, from the last monthly data - for February 2020 - that was available from before Covid struck, equity mutual funds have had inflows of Rs 91,000 crore and outflows of Rs 67,000 crore, resulting in a net inflow of Rs 24,000 crore. During the same period, as the markets fell and then recovered, the total amount of money invested in these funds has fallen from Rs 9.33 lakh crore to Rs 7.31 lakh crore as the markets fell and then risen to Rs 9.39 lakh crore by the end of July.
Through the first five months of the virus, the volatility has been severe - both in the markets as well as the inflows and outflows. However, as is obvious from these numbers, the five months have seen no great calamity on either front. On a net basis, investors have invested strongly and the markets have recovered almost all the value that they had lost. There will surely be challenges ahead - in fact, I'm 100% certain that there will be - but one month at a time is the way investors are looking at it.
Interestingly, in these last few days, there has been a certain amount of news coverage and discussions about the fact the net inflow for July has been negative. However, as I have put it in context above, this is not a significant piece of information. Based on investors whom I have spoken to, this is actually a by-product of the recent sharp rise - against most expectations - of equity markets and thus the NAVs of most equity funds. Through March and April, investors have been subjected to torture of the equity markets. However, as values have gone on recovering, a point has come when for a small number of investors, it looks worthwhile to redeem some of their money.
Regardless of the hype cycle of proclaiming net outflows as some kind of a disaster, the reality is that in the midst of great uncertainty and volatility, there is a monthly withdrawal of 0.29 percent of total assets, in the larger context of a net inflow of about ten times as much since the crisis began. This is actually very good news, showing that the overwhelming majority of investments in Indian mutual funds are intact and the investors are standing steadfast.
They understand very well that you have to stick to equity investments in bad times, and indeed, that the foundations of future returns are laid precisely in times like these. Somehow, most of us understand that this too shall pass. There will be some hard times but in a very fundamental way, this is a crisis that is now less frightening than pure business and economic crises like the one of 2008-09.
Whether that is a justifiable conclusion or not, only time will tell, but so far, so good.
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