Equity mutual funds record net outflows first time in seven years in FY21 despite 67% surge in AUM

. The net outflows recorded were owing to profit booking by investors as Nifty surged strongly from March 2020 lows.

With eight months of consecutive outflows in financial year 2021, investors turned net sellers of equity mutual funds for the first time in seven years. The total outflows from equity funds, including ELSS and index funds stood at Rs 34,700 crore, according to data sourced by domestic brokerage firm Motilal Oswal. The net outflows recorded were owing to profit booking by investors as Nifty surged strongly from March 2020 lows. This stellar jump in stock market returns also helped fund houses increase their equity AUM (Asset Under Management) to record highs of Rs 10.2 lakh crore, up 67% on year basis.

“The year saw a decline in sales of equity schemes, down 7% on-year to Rs 2.04 lakh crore. The pace of redemptions picked up to Rs 2.65 lakh crore up 64% from the previous year,” a report by Motilal Oswal said. Equity AUM surged to highest ever after having witnessed a 27% decline in the previous year, which includes the March 2020 sell-off. Overall, investors continued to pump money into the mutual fund industry as net inflows for all schemes except balanced and equity were in the positive.

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Equity funds also saw a change in sectoral allocation in the pandemic struck fiscal year. “The weightage of domestic Cyclicals increased by 160bp to 58%, led by an increase in the weightage of Automobiles, NBFCs, Cement, Real Estate, Chemicals, and Infrastructure,” the report said. Meanwhile, the weightage of Defensives decreased 100 basis points to 32.5%, led by Consumer, Utilities, and Telecom. Global Cyclicals’ weightage also saw a reduction of 60bp to 9.5%.

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Although defensive in nature, technology stocks were the biggest beneficiaries, in terms of change in weightage, increasing to 11.9% or 300 basis points on year. “The sector is now the second in terms of sectoral allocation by MFs. It was in the third position 12 months ago,” the report said. With the commodity cycle booming in FY21, Metals also saw an increase in weightage. Tech stocks took over from consumer stocks, where weightage was down to 7.4%.