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Mutual funds are a clear winner after demonetisation

Mutual Funds have raked in Rs 2.37 lakh crore in the aftermath of demonetisation


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The government move that greatly disrupted the economy in November last year may have added to the woes of most asset classes while proving to be a boon for mutual funds which has raked in substantial amount of money since then. Mutual fund investments has gone up by a whooping 196% to Rs 2.37 lakh crore in the one year period since the government's banknote demonetisation move in last November. It is a steep hike of Rs 1.57 lakh crore during the period (November 2016-October 2017) compared to the corresponding period a year ago when the total investments amounted to Rs 80,000 crore only. All kinds of investments under the Mutual Funds umbrella received a boost. It includes equity and balanced funds, equity linked savings scheme (ELSS), exchange traded funds (ETF) and systematic investment plans (SIP).

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During the month of November last year when demonetisation caught us unaware all four categories of equity linked funds-- balanced, equity, ELSS and ETF collectively mopped up about around Rs 15,500 crore. The trend has continued well into this year and between the July to October period collective net inflows for all four categories have flitted between Rs 22,000 crore to Rs 30,000 crore.

A break-up of the pie is no less interesting. During the last twelve months (Nov '16 to Oct '17 ) following demonetisation investments in equity Mutual Funds which is the clear winner stands at Rs 1.23 lakh crore followed by balanced fund which had a net inflow Rs 75,000crore. While other ETFs has garnered over Rs 27,000 crore, ELSS had an inflow of Rs 12,000 crore during the same period.

Rajiv Shastri, Executive Director & CEO, Essel Mutual Fund aptly observed, 'Demonetisation had an indirect positive impact on the MF industry. As the real assets market staggered and more of the country's money entered the mainstream, a significant portion of it found its way to the one investment avenue that was performing and completely above board.'

Other asset classes like gold and real estate are not very profitable to invest in. With gold losing its sheen and real estate reeling under the twin problems of debt management and late delivery the Indian investor has warmed up to long term mutual funds in a big way. The reason for mutual funds gaining in popularity is because it provides great liquidity scopes and an ability to compound valuations during a long term period. Lower bank deposit rates are also responsible for turning towards mutual funds.

While commenting on the current scenario, Arvind Chari, Head Fixed Income & Alternatives, Quantum Advisors, said 'Indian stock markets have been on an upswing post the initial down move with demonetisation maybe triggering an increase in the inflows into domestic mutual funds that have out-invested the foreign investor and ensured that the stock market makes new highs despite not so encouraging economic data'.

Sundeep Sikka, executive director and CEO, Reliance Nippon Life AMC, echoed the same sentiments. He said, 'Post demonetisation, more money is coming into the system. This money will find its way into capital markets,'

Here is a graphic on what kind of net inflows were seen by different long-term equity categories post-demonetization.

DEMONETIZATION BOOST TO MFs

Net inflows (Rs Crore)
MonthEquityBalancedELSSOther ETFsTotalAn year ago% growth (year on year)
Oct' 171521858977841675235741371971.83
Sep '171801081419261968290458551239.66
Aug' 1719515878384715133065810129202.67
Jul' 171203778646901753223444972349.39
Jun' 17745374587111365169873731355.29
May' 17102087663531584189866461193.85
Apr' 1788427136587456170214875249.14
Mar' 175310595229063599177674184150
Feb' 1754654562997930119544653156.9
Jan' 173714330411666748149325179188.31
Dec' 16919639479074349183998877107.26
Nov' 16806836321011283015541855481.68
Total12303674339120632777023720880119196.07
Source: AMFI monthly reports

The move of the government which was otherwise very disruptive, led to a growing traction in SIPs. The proof is in the pudding. SIP investments in November '16 soared by 13.1 per cent compared to a fall of 7.1 per cent in October '16. During the 12 month period from Nov '16 to Oct '17 SIP contribution grew by an impressive 40 per cent further reiterating the fact. Please follow the table for more details.

Here is how SIP contribution grew since demonetization.

MonthSIP Contribution (Rs crore)% growth (month on month)
Sep' 1755165.95
Aug' 1752065.23
Jul' 1749474.27
Jun' 1747443.49
May' 1745847.37
Apr' 174269-1.52
Mar' 1743357.04
Feb' 1740501.09
Jan' 1740953.07
Dec' 1639732.29
Nov' 16388413.1
Oct' 163434-7.13
Sep' 1636985.74
Source: AMFI
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