Domestic mutual funds report higher redemption in December


The domestic mutual funds are witnessing rising redemption pressure at a time when the equity indices are trading at record levels. Their three-month rolling average of equities sold reached to Rs 71,680 crore in Dec ember 2020, the highest since the data was first made available by SEBI in 1999. It includes exposure of equity funds, index funds, exchange traded funds, and balance funds.

The profit booking in several funds due to double digit returns and outflow from several small to medium funds due to rebalancing aggravated the redemption pressure. The balance funds which are supposed to be all-weather funds have seen outflow in every month of 2020.

The domestic funds pruned their exposure in the quality stocks such as Infosys, TCS, Wipro and HDFC bank in the December quarter, data from the BSE show.

Gross purchase to redemption ratio of MF in equities

Source: SEBI, compiled by ETIG

The domestic funds managed equity assets worth Rs 13.9 lakh crore in December 2020 accounting for 15.7% of the total assets under management (AUM) by institutional investors according to the NSDL data. The domestic funds were net sellers in the equities segment in December for the seventh month in row. In January so far, they have sold equities worth Rs 11,265 crore so far.

Since March 2020, the domestic funds have sold nearly Rs 1.1 lakh crore worth of equities, while foreign portfolio investors (FPIs) have pumped close to Rs 1.9 lakh crore in Indian equities.

The ratio of gross purchase and gross redemption, which captures redemption pressure — dropped to 0.61-0.69 in the two months to December 2020, the lowest since the global financial crisis in 2008. The ratio averaged 1.06 in the last twelve years.

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Break of institutional equity AUM break up (fig in %)

Source: NSDL, compiled by ETIG





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