Mumbai: Equity mutual fund inflows hit a five-month high in September, with investors pouring money into small- and mid-cap schemes despite a weak equity market backdrop and sustained foreign investor selling. Debt funds, however, witnessed outflows, led by redemptions from liquid and money market schemes by companies for advance tax payments, partly resulting in the mutual fund industry posting outflows during the month.

Net inflows into equity schemes rose nearly 31% from the prior month to ₹38,306.55 crore in September, extending the momentum seen in August when investments increased nearly 19%, according to data from the Association of Mutual Funds in India. With September's inflows, equity funds have now recorded net inflows for 67 consecutive months.

Contributions under monthly systematic investment plans (SIPs) hit a monthly record at ₹32,490 crore in September, up from ₹32,297 crore in August. SIP assets under management rose to ₹17.86 lakh crore.

ET Bureau

The strong inflows came even as both the Sensex and Nifty indexes declined about 6% during the month on concerns over rising crude oil prices, higher US bond yields and continued selling by foreign portfolio investors.

Among equity categories, small-cap funds attracted the highest inflows at ₹9,038.57 crore, followed by mid-cap at ₹7,834.84 crore. Together, the two segments accounted for about 44% of the total inflows into equity funds. Investors continue to favour mid- and small-cap categories despite their relatively weak recent performance, said Viraj Gandhi, CEO of Samco Mutual Fund.

"The 12-month benchmark performance was mixed as the large-cap index fell 12% and the mid-cap index fell 1%, while the small-cap index rose 3%. Against that backdrop, September's equity-fund flows suggest investors were still favouring mid- and small-cap exposure despite their recent weak performance," Gandhi said.

Flexi-cap funds received ₹6,701.80 crore during the month, up from ₹5,059.42 crore in August, while large-cap funds returned to the positive territory with net inflows of ₹859.47 crore after witnessing net outflows of ₹1,147 crore in the previous month.

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However, the number of systematic investment plans accounts presented a contrasting picture. Around 6.3 million new SIP accounts were registered last month, while nearly 7.3 million matured or were discontinued, resulting in closures and maturities exceeding fresh registrations by about a million.

Debt funds witnessed a sharp reversal, with net outflows surging to ₹1.83 lakh crore in September from ₹8,127.32 crore in August. Liquid funds accounted for the bulk of the withdrawals, recording net outflows of ₹95,743.20 crore compared with inflows of ₹19,934.29 crore in August. Money market funds also saw net outflows of ₹50,846.21 crore after attracting ₹11,734.71 crore in the previous month.

The sharp pullback from debt funds dragged the industry's overall flows into the negative territory. The mutual fund industry reported net outflows of ₹1.33 lakh crore in September compared with net inflows of ₹41,368.05 crore in August.

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"The decline was overwhelmingly driven by liquidity-oriented categories, suggesting quarter-end treasury adjustments and institutional cash-management activity rather than a broad-based deterioration in investor appetite for fixed income," said Nehal Meshram, senior analyst at Morningstar Investment Research India.

The industry's total assets under management declined 5.1% to ₹82.64 lakh crore as of September 30 from ₹87.08 lakh crore in August, largely reflecting the sharp outflows from debt-oriented schemes and mark-to-market impact from the fall in equities.

Gold ETFs saw monthly inflows of ₹4,451 crore, marking a 71% jump from ₹2,597 crore in August, as investors turned to the safe-haven asset amid geopolitical tensions.