Illustration: Binay Sinha

Mutual funds (MFs) have seen a sharp jump in SIP registrations as well as account closures, signalling a rejig in portfolios by investors amid a surge in equity volatility ahead of the general elections. Last month, SIP registrations jumped 48 per cent month-on-month to 6.4 million, while closures surged 42 per cent to 3.3 million.

“One reason behind the surge in new account openings as well as closures could be the realignment of the portfolio. In the last few years, the allocation towards smallcap and midcap funds went up. Some investors may now be shifting towards large cap-focused schemes. That is a healthy sign,” said Swarup Mohanty, VC & CEO, Mirae Asset Investment Managers (India).

“A surge in new accounts and closure of existing ones indicate portfolio realignment. This could be on both fronts — within asset classes and scheme categories,” said Jimmy Patel, Chief Executive Officer (CEO) of Quantum MF.

The SIP closure data also includes accounts that reached their maturity in April.

Largecap and flexicap schemes have seen a surge in inflows and folio additions since the start of calendar year 2024, coinciding with the dip in smallcap and midcap fund inflows. Gross inflows into largecap funds have remained above Rs 5,000 crore for the past three months even as net inflows came in at just Rs 358 crore in April owing to a jump in redemptions. Flexicap funds received the net inflow of Rs 2,173 crore.

According to MF executives, the start of a new financial year could also have nudged investors to review and rebalance their portfolios. Some say savvy investors have reduced the ‘beta’ or the high-volatile stocks in their portfolio ahead of key events such as elections, result announcements, and the monsoon report card.

“Investors could have made changes to their portfolio at the start of the year,” said Mayukh Datta, Chief Business Officer, ITI Mutual Fund.

MF investment account (folio) data, which includes both SIP and lumpsum accounts, shows sectoral and thematic funds added the most number of folios at 819,171. Smallcap and midcap funds recorded the next highest folio additions at 374,780 and 364,798, respectively.

Experts say that while some investors have been booking profits in smallcap and midcap funds and moving to large cap-oriented schemes in the past few months amid concerns of stretched valuations, the strong performance of these schemes across time frames is ensuring sustained addition of new investors and folios.

The churn in SIP accounts has been on the rise over the years owing to the ease of investing brought about by online investment platforms. However, industry officials say that investors should take the lumpsum route to short-term tactical play rather than frequently changing their SIP portfolios.

“Ideally, one should not time SIPs. If people churn their SIP portfolios, then they are equating the concept of SIPs to lump sums,” Mohanty said.

Overall in April, net inflows into active equity schemes were 16 per cent lower month-on-month at Rs 18,917 crore, largely due to higher redemptions from largecap funds and a decline in collections by new fund offerings. Some industry officials attributed the decline in net inflows into equity schemes to “investors opting to book profits and stay on the sidelines ahead of the election results”.

Lower-risk MF categories like debt and hybrid schemes saw a spike in inflows in April. Debt funds recorded a net inflow of Rs 1.9 trillion, while arbitrage funds received net inflows of Rs 13,900 crore. Arbitrage funds are the lowest-risk MF offering which qualify for equity taxation. They are mostly used by high net-worth investors to park money for the short term.

First Published: May 10 2024 | 7:38 PM IST

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