2018 was a reality check for Indian asset managers. Stock markets turned choppy, midcaps and smallcaps bled and equity returns faltered. All this clearly seems to have chipped away at investor confidence.

December data for mutual funds from Association of Mutual Funds in India (AMFI) shows that inflows into equity schemes fell over 21 percent from November to Rs 6,606 crore. The December number is around 40 percent lower than the monthly average for 2018 and a huge 67 percent drop from the all-time high we saw back in 2017.

The silver lining was that inflows in December into Systematic Investment Plans or SIPs remained healthy and even grew a little bit over November. As against the Rs 7,985 crore, which SIPs got in November, retail investors put in over Rs 8,000 crore into SIPs.

While the big jump in inflows into Equity ETF category was heartening to some in the industry, some industry experts attributed nearly all of the increase o the CPSE ETF, which collected money in the month gone by. Against inflows of Rs 1,634 crore in November, the category saw a big inflow of Rs 10,878 crore.

So where does all of this leave us? Stock market experts and analysts have been claiming that the strong flow of money from domestic investors into mutual funds will act as a counter to any large foreign selling.

As the December number shows, one cannot take that hypothesis for granted – especially given the fact that this is a general election year.

But one thing is clear, while the inflow into stock market via mutual funds will go up and down depending on market sentiment and funds returns, the culture of investing into equity markets has clearly made deep roots. Consider this, the number of active investor folios are now over 8 crore, this is up over 21 percent from December 2017!

Mutual funds have added a staggering Rs 1.24 lakh crore to their asset base in 2018 assisted by consistent increase in SIP flows and a robust participation of retail investors despite volatile markets.

The asset under management (AUM) of the industry grew by 5.54 percent or Rs 1.24 lakh crore to Rs 23.61 lakh crore at the end of December 2018, up from Rs 22.37 lakh crore at the end of December 2017.

The year 2018 also marked the sixth consecutive yearly rise in the industry's AUM after a drop in the two preceding years.

The pace of growth, however, declined for the asset size in 2018 as compared to the previous year. The industry saw a surge of 32 percent in the AUM or an addition of over Rs 5.4 lakh crore in 2017.

The IL&FS default and the consequent blow to the NBFC sector because of the credit crunch, exposed mutual funds to ill-liquid debt funds worth lakhs of crores. This coupled with volatile markets could be some of the reasons for a slower growth in assets base last year.

Quantum Mutual Fund MD and CEO Jimmy Patel attributed the rise in mutual funds' asset base in 2018 to strong participation of retail investors that continued to remain buoyant with their SIP investments despite rising crude oil prices, rupee depreciation and stock market volatility.

In addition, markets regulator Sebi's efforts on investor education as well as Amfi's 'Mutual Fund Sahi Hai' campaign also helped the industry, he added.

Fund houses believe that an uptrend is expected in 2019 too as large amount of flow is expected through SIP (Systematic Investment Plan) route as it helps in rupee cost averaging and also in investing in a disciplined manner without worrying about market volatility and timing the market.

"Among the factors that will help such a move in 2019 is that an ever larger proportion of the flow is through SIP which adds to the existing AUM. Also, the number of folios that are added on a monthly basis continue to be robust indicating that more and more new investors are investing through mutual funds.

"Increased geographical penetration and technology may also lead to greater participation in MFs," Essel Mutual Fund CIO Viral Berawala said.

(With inputs from PTI)

First Published:Jan 8, 2019 4:18 PM IST