NBFC crisis takes toll on MF investments

The mutual fund purchases in the country have dropped 3.7% in October, because of the huge decline in the debt instruments on the back of the IL&FS crisis.

According to the data available with the Securities and Exchange Board of India (Sebi), the gross purchases by mutual funds declined to Rs 2.23 lakh crore in October 2018, compared with Rs 2.31 lakh crore in the month of September.

Out of the Rs 2.23 lakh crore, Rs 78,340 crore purchases were witnessed in the equities -- a jump of 27.4% over September's Rs 61,491 crore.

However, the hit on the mutual fund investments came from the debt segment which constitutes a major chunk of MF investments. The gross purchases in this segment declined by 14.9% to Rs 1.44 lakh crore in October from Rs 1.70 lakh crore in the month of September.

Analysts attribute it to the crisis in India's shadow banking business triggered by IL&FS default.

"After the IL&FS default, a lot of people are withdrawing from it. And few schemes have given a negative return. So, people are a little bit jittery about it thinking that the money is unsafe," a senior analyst with Motilal Oswal Securities said.

NBFC giant, IL&FS Group, whose total debt stood at Rs 94,215.6 crore as of October 8, has been defaulting on its loans and the interest payments.

MF sales have also dipped to Rs 1.71 lakh crore in October from Rs 2.01 lakh crore in September. Like, in the case of gross purchases, the dip in sales was on the back of a dip in MF sales in the debt instruments. The gross sales in the debt dropped by 22.5% in October to Rs 1.17 lakh crore from Rs 1.51 lakh crore in September on a sequential basis.

However, the net investments of the MFs during the month have gone up by 71% to Rs 51,411 crore during October, as the sales have dipped faster than the purchases in the debt instruments.