MF equity investments surge 58% in May as SIP accounts decline

Despite strong equity inflows, the mutual fund industry witnessed a rare decline in SIP accounts during March-April, with B-30 direct plan SIP accounts falling by over 350,000, dragging down the overall active SIP account count by 114,000 in the two-month period, as reported by Business Standard. The MF investor base is broadly divided into T-30 (top 30 cities) and B-30 (all other locations) segments, with direct plan investors from B-30 locations showing higher sensitivity to market volatility. According to Suranjana Borthakur from Mirae Asset MF, many new investors from B-30 locations entered mutual funds through direct channels with return expectations shaped by the strong post-pandemic rally, making them more vulnerable to recent market volatility.

The equity surge occurred despite challenging market conditions, with stock indices falling around two percent last month due to geopolitical tensions and oil sector concerns. In March, the benchmark Sensex and Nifty plunged 12%, their steepest monthly decline since March 2020, as oil prices surged amid the escalating West Asia crisis, as reported by Business Standard. Additionally, global financial service provider Morgan Stanley reduced India's weightage in its emerging market index from 12.4% to 12.3% in its quarterly rebalancing, effective Friday, which triggered significant FPI selling in Indian markets. The low returns have made Indian markets unattractive for global investors, with the Nifty and Sensex delivering negative returns of 5% and 6% respectively in dollar terms over the last one year, while individual stock returns plunged 16%.

GIFT City's promise as a two-way investment gateway is facing challenges as geopolitical uncertainties and weak dollar returns from Indian equities have tempered investor enthusiasm. While new retail funds such as the TATA Dynamic Equity Fund have dropped entry limits to just $500, and schemes like DSP Global Equity Fund and Edelweiss Greater China Equity Fund offer cross-border investing opportunities, the low returns have made Indian markets unattractive for global investors. However, GIFT City has become a vital escape route for Indian residents, particularly after the shutdown of popular MF schemes, with GIFT City outbound funds allowing locals to use their Liberalised Remittance Scheme (LRS) quota of $250,000 to invest globally.

Industry experts highlighted the resilience of domestic investment flows, with Shweta Rajani from Anand Rathi Wealth noting that domestic flows remain in a stable zone as investors are increasingly guided by discipline and financial planning rather than market emotion. As reported by The Hindu BusinessLine, while most sectors reported double-digit earnings growth in Q4, margins remained under pressure due to higher commodity and input costs, with these pressures likely to persist into the June quarter. Deepak Jain from Edelweiss MF noted that it's natural for young or first-time investors to feel anxious during volatility phases, emphasizing that navigating market cycles is part of the learning curve for seasoned investors.

Despite global uncertainties and corporate earnings concerns, Ponmudi R from Enrich Money emphasized that investors are adopting a longer-term perspective rather than reacting to quarterly earnings volatility. According to The Hindu BusinessLine, SIPs are designed to navigate such phases by averaging costs across market cycles, with structural factors supporting continued mutual fund inflows in India. Manish Kothari from ZFunds noted that while there is stress on SIP account closures, there's also migration from direct to handheld plans, with close to 40% of new investors in the last six months being direct crossovers who encountered volatility and decided to seek professional guidance.