Investors in India are waiting the election out.
In April, inflows into equity mutual funds (MFs) dipped to their lowest levels since January 2017, according to data released by the Association of Mutual Funds in India (AMFI) last week. Net inflows stood at Rs4,609 crore ($658 million) in the month, compared with Rs11,756 crore in March.
Experts attribute this to the uncertainty around who’ll form India’s next government, which has made equity markets volatile.
Even in the relatively safer debt mutual funds, which invest in fixed income instruments like corporate bonds and government securities, the story is no different. Investors withdrew Rs18,635 crore from debt funds in April.
The fall was mainly driven by an outflow of Rs17,644 crore from fixed-maturity plans (FMPs), a type of debt instrument, after investors were spooked by a default from the Mumbai-based conglomerate Essel Group. FMPs of many mutual fund houses had invested in the group’s companies.
“Of course, these events have a bearing on investor sentiment,” said NS Venkatesh, CEO of AMFI.
The only bright spot is that inflows via systematic investment plans (SIP) were steady in April. For retail investors, this is deemed the most stable instrument of investent, believe financial planners.
However, at least for now, not many are heeding that advice.
“The uncertainty caused by elections have definitely led to people slowing down their investment. Till then (the results) people are holding on to their wallets because they want to wait and see what happens,” said Srikanth Meenakshi, founder of FundsIndia, an online mutual fund advisory portal. Also, April, May, and June are historically subdued months for investments, added Meenakshi.
Now that elections are drawing to a close, with results scheduled to be announced on May 23, some stability in the market is likely to emerge. But there are other obstacles.
The expense ratio, the amount companies charge investors to manage their mutual fund investments, was slashed in April. While this means lower costs for investors, it has also diminished the returns for distributors. As a result, they have not been selling mutual funds as aggressively as before, believe experts.
Besides, there are macroeconomic challenges, too.
“There is talk of a consumption slowdown. Consumption has been one of factors accountable for the India growth story till now,” said the chief investment officer of a mutual fund house, requesting anonymity. “Going ahead, investments are not going to be significant due to the typical financial constraints that we see in an election year and so markets sentiments may remain rather tepid.”