Sebi's Regulatory Actions Impact Mutual Fund Flows
MAS Team | 15 April 2024
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In March 2024, Sebi's (Security Exchange Board of India) regulatory measures targeting mutual fund investments in small-cap schemes had a noticeable impact on the overall equity inflows into mutual funds. This regulatory move resulted in a decline in total equity inflows compared to the previous month.
 
The inflow into equity mutual funds decreased by 16%, from Rs26,866 crore in February to Rs22,633 crore in March.
 
What's intriguing is that while inflows remained positive across categories such as mid-cap, large-cap, and multi-cap, small-cap funds experienced an outflow in March. This marked the first time in 2.5 years that small-cap funds saw such an outflow.
 
Interestingly, large-cap funds witnessed a significant increase of 131% month on month, contrasting with declines seen in other equity categories, although they still remained in positive territory.
 
According to AMFI below is a comparison of inflows across different categories for February and March:
 
Small-cap: Rs2,922 crore (Feb) vs. -Rs94 crore (March)
Mid-cap: Rs 1,808 crore (Feb) vs. Rs1,017 crore (March)
Large-cap: Rs921 crore (Feb) vs. Rs2,127 crore (March)
Multi-cap: Rs2,414 crore (Feb) vs. Rs1,827 crore (March)
 
While the overall interest in equity markets remained strong and markets showed resilience, the decline in small-cap funds impacted the overall equity fund inflows.
 
On the other hand, debt mutual funds witnessed significant redemptions amounting to Rs1.98 lakh crore in March, compared to an inflow of Rs63,808.8 crore in the previous month.
 
Hybrid schemes also experienced a notable decline in inflows, dropping from Rs18,105 crore to Rs5,583 crore. However, inflows into retirement funds saw a slight increase from Rs116 crore to Rs132 crore in March.
 
The inflows into large-cap mutual funds showed a substantial 130% month-on-month rise. Similarly, inflows into children's funds increased from Rs 66.7 crore to Rs 74 crore.
 
However, there were fluctuations in other segments as well. Inflows into index funds decreased to Rs1,822 crore from Rs2,536 crore in February, while inflows into gold ETFs declined to Rs373 crore from Rs997 crore in the preceding month.
 
On the positive side, inflows into other ETFs surged by 63%, reaching Rs10,559 crore compared to Rs6,461 crore in February.
 
Venkat Chalasani, Chief Executive of AMFI, commented on the investor sentiment, noting that despite regulatory changes and market fluctuations, investor confidence in mutual funds remained strong. He highlighted the record-high SIP accounts, with over 42 lakh new registrations and SIP AUM surpassing previous figures, indicating investors' steadfast commitment to disciplined wealth accumulation.