One of the major highlights of the latest mutual fund data is that small cap funds saw their highest-ever inflow of funds. Apparently, these inflows stemmed from the massive outflows from large cap schemes along with focused and index mutual funds.
As one can see from the table below, focused funds saw an outflow to the tune of ₹1,018 crore in June, an increase of 7.8 percent over May.
There are 27 focused fund schemes with total assets under management (AUMs) of ₹1,09,698 crore.
A similar phenomenon was seen in large cap and index mutual funds too. Large cap funds saw an outflow of ₹2,049.61 crore against ₹1,362 crore, an increase of 50 percent. At the same time, index funds witnessed an outflow of ₹905 crore while there was an inflow of ₹108 crore in the preceding month.
|Category of funds||May outflow ( ₹crore)||June outflow ( ₹crore)||Increase|
|Large cap funds||-1,362.28||-2,049.61||50%|
Source: AMFI data
So, what exactly are the reasons for the outflow from these schemes and the inflow in small caps? We asked a few experts and they assert that both the trends are inextricably intertwined.
Reasons for outflow
“Outflow in large cap funds is related to large inflows into small caps. After all, the latter are available at attractive valuation, thus making them a good-buy. Investors are hopeful for high returns in small caps, and hence the higher inflows into them,” says Sridharan Sundaram, Founder of Wallet Wealth.
About this phenomenon, he says that this trend speaks of the beginning of a bull run. “All the data points show that India is in a better position than the rest of the economies and these trends could be the start of a bull run,” he adds.
Amol Joshi, founder of Plan Rupee Investment Services, echoes the same sentiments and says, “Small cap 250 index moved by 25 percent in the past 3 months. It’s because of the robust past performance that many investors have moved their money from large caps to small caps. Although we never recommend taking investing decisions on the basis of past performance, but it’s the investors’ behaviour to chase the high-performing funds that led to this trend of higher outflows from large cap schemes, and the higher inflows into small cap funds.”
“Besides, since the market is at an all-time high, a number of investors have opted for profit-booking. This also led to major outflows in some categories including large caps,” Mr Joshi says.
Mutual funds have seen a record-breaking number of systematic investment plan registrations in June 2023 totalling 27,78,507, shows the latest AMFI data.
“This reflects a strong belief in India's growth story.India’s economic story is unfolding, GDP growth numbers are good, monsoon is good till now, and it is a benign environment for investors,” says NS Venkatesh, CEO of AMFI.