Large-cap MFs, Index Funds to attract flows as markets pick pace: Analysts

As markets navigate through global growth uncertainty, analysts expect flows into index funds or large-cap mutual funds to outpace other offerings in months ahead.

This could be due to the fundamental strength of such companies and the cost-effectiveness of index funds, they said, adding that the overall inflows into mutual funds may remain mixed.

“Debt mutual funds, with maturities less than one year, will likely continue to attract flows, as will arbitrage and hybrid funds. In the equity mutual fund space, index funds are likely to remain attractive due to investors' preference for passive investment strategies and the cost-effectiveness of these funds,” said Sahil Kapoor, Senior Executive Vice President, of 360 ONE Wealth.

Gross inflows into active equity mutual fund (MF) schemes dipped 34 per cent month-on-month (MoM) -- to Rs 25,400 crores -- in April, pulling the net inflows to the lowest level of Rs 6,480 crore.

In March, the net inflows had scaled to a 12-month high of Rs 20,500 crore, while gross inflows stood at Rs38,641 crore.

Segment-wise, large-cap MFs clocked inflows worth Rs 52.63 crore in April, down sharply from inflows worth Rs 911 crore in March.

On the contrary, small-cap MFs attracted a net inflow of Rs 2,245 crore and mid-cap MFs saw Rs 1,960crore worth of investments.

Analysts also attribute the decline to no new fund offers (NFOs) in April, flows in the ELSS category experiencing lower flows, some close-ended schemes maturing in April, and a seasonally lean month period.

That said, total AUM for the MF industry rose 5.6 per cent MoM to Rs 41.6 trillion in April, led by a monthly increase in AUM for liquid (Rs 79,600 crore), equities (Rs 69,400 crore), income (Rs 36,300 crore), debt funds (Rs 1.06 trillion), and other ETF (Rs 17,900 crore) funds.

Going ahead, analysts believe the future trajectory of MF flows will largely depend on the performance of the market.

“If the markets remain stable, investors could gain confidence and may choose to hold on to their investments rather than engage in profit booking. A lot will, however, depend on how economic indicators and global events pan out,” said Sahil Kapoor of 360 ONE Wealth.