Due to the onset of the COVID pandemic, equity mutual funds had witnessed outflows of INR 2,22,854 crore between February and March 2020. Outflows continued for 8 months between July 2020 to February 2021 to the extent of INR 46,791 crore on account of uncertainties caused by the pandemic. Many individuals faced pay cuts or lost jobs which also led to possible redemption pressures.
The trend seems to have reversed now as equity mutual funds have seen positive flows over the last 3 months. In May 2021, net inflows of INR 10,083 crores were seen in equity funds which is an increase of 2.9x over the last month and are the highest since February 2020. The primary reasons for the renewed confidence of investors are continued strength in stock markets aided by a steady decline in COVID cases from 4 lakh per day to 70,421 new cases, strong quarterly earnings and a higher probability of faster economic recovery. Additionally, the sub-par performance of debt funds has also encouraged investors towards the equity category. Debt funds witnessed net outflows of INR 44,512 crore in May 2021.
Continued low bank interest rates are also pushing investors towards equity mutual funds. Further, the system remains awash with liquidity with very few options for generating returns that can beat inflation, which seems to be inching upwards now.