Equity mutual funds witnessed an outflow of Rs 9,253 crore in January, making it the seventh consecutive monthly withdrawal, primarily due to profit booking and portfolio rebalancing amid markets touching new highs.

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The pace of outflows from equities has however slowed for the third month and Gautam Kalia, Head Investment Solutions, Sharekhan by BNP Paribas said that it will likely turn positive soon as investors get used to the new normal.

In addition, investors pulled out Rs 33,409 crore from debt mutual funds last month after investing Rs 13,863 crore in December, data from the Association of Mutual Funds in India showed on Tuesday . Overall, the mutual fund industry witnessed a net outflow of Rs 35,586 crore across all segments during the period under review, compared to Rs 2,968 crore inflow seen in December on investment from hybrid and other schemes.

As per the data, outflow from equity and equity-linked open ended schemes was at Rs 9,253 crore in January compared to Rs 10,147 crore in December. Overall, equity schemes had witnessed an outflow of Rs 12,917 crore in November, Rs 2,725 crore in October, Rs 734 crore in September, Rs 4,000 crore in August and Rs 2,480 crore in July, which was their first withdrawal in over four years.

Prior to this, such schemes had attracted Rs 240.55 crore in June. "The continuation of net outflows from equity funds could be attributed to profit booking/portfolio rebalancing as markets continue to touch new highs," Himanshu Srivastava, Associate Director Manager Research, Morningstar India said.

In fact, the net outflow number would have been higher had it not been for the new fund offer (NFO) in the sectoral or thematic fund category which collected Rs 4,185 crore, he added. "January 2021 saw measured maturity-driven redemptions led by smart, goal-based investing and the desire to book profits with equity indices reaching all-time high," Amfi's chief executive N S Venkatesh said.

Outflows were witnessed in most of the equity fund categories except for the multi-cap fund category, sector or thematic fund category (largely due to a launch of an NFO which garnered good investments) and dividend yield category, which witnessed a very marginal net inflow. Flexi Cap Fund category was the worst hit during the month with a net outflow of Rs 5,934 crore, followed by large cap funds with a net outflow of Rs 2,853 crore.

"During January, 16 multi cap funds were re-categorised as flexi cap. Therefore, continuing with the trend that we have been witnessing since June 2020, there have been increasing net outflows from the funds in this category (which were earlier a part of the multi cap category)," Srivastava added. Contribution of systematic investment plans (SIPs) dropped to Rs 8,023 crore last month from Rs 8,418 crore in December.

Within the debt schemes, liquid funds logged maximum outflow to the tune of Rs 45,316 crore. Besides, low duration funds saw outflow of Rs 8,041 crore. Owing to regulatory measures to ease liquidity and also the stance to hold on to the policy rates, some of the debt categories like corporate bond fund, Banking & PSU fund, short duration funds have seen positive flows, Amfi's Venkatesh said.

Even the credit risk funds are now moving into positive flows, given that the risk-return dynamics is working in favour of retail investors, he added. However, investors infused Rs 2,142 crore in hybrid schemes. Apart from this, Gold exchange traded funds (ETFs) witnessed an inflow of Rs 625 crore last month, higher than Rs 431 crore seen in December.

Sharekhan by BNP Paribas' Kalia said market sentiment was cautious ahead of the Union Budget announcement with retail investors preferring hybrid categories over equities. Given the stretched valuations, even within the equity category, their preference seemed to be for thematic ideas over broader markets. The asset under management (AUM) of the mutual fund industry was at Rs 30.5 lakh crore in January-end from Rs 31.02 lakh crore in December-end.

Speaking on the RBI's decision to allow retail investors to directly buy government securities, Venkatesh said definitely it's a good move but it would not be a challenge for the mutual fund industry as people will continue to invest in mutual funds.