Did equity fund flows get hit in the first half of the year due to the COVID uncertainty?

It may sound paradoxical but for the first half ending June 2020, Indian mutual fund investors have made a net investment of Rs.39,500 crore into equity funds in the first six months of the year. This is nearly four times the amount of flow into equity funds in the first six months of 2019. This was in spite of the pressures of COVID-19 and the lockdown.

What is notable is that these flows have come at a time when the stock markets have been through bouts of volatility and massive price correction. This paradox can be largely attributed to the regular stream of flows from SIPs which sustained at above Rs.8200 crore on a monthly basis on an average. These flows have sustained despite difficult markets.

Debt fund flows have been a lot more volatile with credit funds bearing the brunt of the sell-off. Post Templeton fiasco, debt funds saw massive outflows from credit funds and from medium duration funds that had an exposure to credit risk. However, the flows into safer funds like banking funds, PSU funds, G-Sec funds and liquid funds remained robust.

What needs to be remembered is that it is only SIPs that have sustained the equity fund flows in the first half. In fact, in most of the months, the actual lump sum flows into equities would have been negative if the impact of the SIP flows were removed. In a way, SIP investors would still be better off in the last six months of volatility due to cost averaging.