Liquidity concerns loom large on MFs; inflows drop 27%

The net inflow into the mutual funds continues to decline, owing to the concerns over the liquidity crunch in the markets.

The mutual funds saw a net inflow of Rs 1,00,459.73 crore for the month of April 2019, down 26.9% from Rs 1,37,428 crore garnered in the corresponding quarter last year.

“Essentially if you look at these inflows, the majority of them are getting contributed through liquid funds. They will always show volatility. An if you look at the system liquidity – April 2019 liquidity is far negative than the 2018 numbers,” NS Venkatesh, Chief Executive, Association of Mutual Funds in India told DH.

Amfi, which has changed the reporting standards from this April, to comply Sebi’s order to adopt full trail model of commission in all schemes while allowing up fronting of trail commission only in case of inflows through systematic investment plans (SIPs).The liquid/money market category in April 2018 had garnered net inflows of Rs 1,16,486 crore. However, in April 2019, the money market funds and liquid funds which has been classified under two separate heads, have garnered a combined net inflow worth Rs 96,197 crore – a drop of 21%.

Liquidity concerns have plagues Indian markets for over 6 months now, after the IL&FS fiasco in September 2018, that sucked out a whopping Rs 90,000 crore from the markets. The situation has been aggravated as during elections, the country is witnessing more and more hoarding of the cash. Despite Reserve Bank's constant open market operations (OMOs) aimed at pumping liquidity into the markets, the financial system has been reeling under the constant liquidity crunch. Liquidity crunch happens when financial markets face a dearth of funds -- as a result of which banks resort to more borrowing than lending under RBI's repo facility.

On the other hand, the net assets under management for all the mutual funds combined stood at Rs 24,78,756.93 crore at the end of April 2019, a jump of 6.6% from Rs 23,25,505 crore at the end of April 2018.

At the end of April, the MF industry had a total of 1,967 schemes, catering to 8.27 crore folios across the country.