The gross redemption from equity mutual fund schemes has increased 19 per cent in the September quarter to ₹1.25 lakh crore against ₹1.05 lakh crore on the back of early investors pulling out their investments given the prolonged global uncertainty clouding domestic growth.
Gross redemption from small-cap was also up three per cent to ₹12,499 crore in the September quarter from ₹12,106 crore in the June quarter while that of mid-cap jumped 14 per cent to ₹12,544 crore from ₹10,966 crore in the same period.
The heavy redemption was on the back of poor market sentiments. The benchmark Nifty 50 finished the September quarter down about 5 per cent, dropping to 22,620 on September-end from 23,866 at the end of June.
The damage was heavily driven by September alone, when the index plunged by about 6 per cent, marking its worst September performance since 2018.
Similarly, the Sensex delivered a negative return of 5 per cent in the September quarter with the index dropping to 72,480 points as of September-end from 76,478 in June-end.
The index faced intense selling pressure largely impacted by foreign fund outflows, rising crude oil prices, and global market headwinds—before recovering slightly toward the end of September.
The redemption was strong in hybrid schemes also. In the September quarter, hybrid funds registered a 12 per cent rise in gross redemption to ₹1.08 lakh crore against ₹96,199 crore in the June quarter.
The unfavourable movement in the rupee had impacted the debt markets, with fewer arbitrage opportunities on the equity side impacting hybrid funds.
Bharath Rathore, Executive Director, Anand Rathi Wealth, said there could be periods of moderation or even outflows in mutual funds depending on equity markets movements.
The outlook on small-caps remains positive, particularly with valuations at reasonable levels and earnings growth providing support, he said.
Small-cap companies definitely have good growth potential, driven by their own business opportunities, earnings growth and demand for their products and services, he added.
Rajesh Singla, Chief Executive Officer and Fund Manager, Alpha AMC, said the regular, rule-based money inflows through SIP give equity funds a steady base even when sentiments are weak.
While many small companies grow on their own strengths, he said they are more sensitive to funding conditions and market cycles, so selection matters more in small-caps than in large caps, he added.
Rishi Gupta, Managing Partner at investment advisor and asset manager Shepherd’s Hill, said though market volatility causes some apprehension among equity investors, the inflows will remain strong given the low equity market penetration and long-term growth prospects.
While strong inflows into small-caps may not be a problem, fund managers need to do a better job of scouting the right opportunities within the space and entering at reasonable prices, he added.
