Many market observers believe redemption pressure in the Mid and smallcap funds and stopping of SIPs in these funds led to the recent carnage in the broader markets. The latest data from AMFI however, seem to indicate there is no significant change in SIP trends. Financial Express.com touched base with Industry insiders for a detailed check-
Here are the 4 key takeaways from the January Mutual Fund data and the industry outlook on what the likely trend going forward
#1 Inflows to mid and small cap funds higher
The inflows to Small cap funds were higher in January at Rs 5,721 crore as compared to December at Rs 4,688 crore. Midcap funds too saw a higher number at Rs 5148 crore in January, up from 5,093 crore in December.
Akhil Chaturvedi, Executive Director & Chief Business Officer, Motilal Oswal AMC adds that even the initial flow trends in February seem to indicate there is no significant drop in the numbers. Here’s what he told FInancial Express:
“If you see the flow last month, the flows to mid and small cap funds is about Rs 5000 crore, similar to December. So the flows are pretty stable in January, and we are seeing similar trend in the first 10 days of February too. There has not been any panic selling. The investors are continuing to buy on dips and we have not seen any halting of SIPs in the small and midcap section either. So the SIP number is actually pretty stable. As of now, the trend is positive and encouraging, and we are not seeing any panic selling in mid and small caps.”
#2 No stopping of SIPs
The AMFI data indicates that 56,18,831 new SIPs were registered in January and the SIP AUM stands at Rs 13,19,852.65 crore. for the month of Jan 2025. The SIP inflow continues to be Rs 26,000 crore for the second straight month. Though the contribution for January at Rs 26,400.21 crore is a tad lower than Rs 26,459 recorded in December.
Manish Mehta, National Head – Sales, Marketing & Digital Business, Kotak Mahindra AMC added that,
“You definitely saw mid caps and small caps correct a lot. But I don’t think you can say that the mutual fund investors were redeeming, or the mutual fund SIPs have stopped and that’s the reason why fund managers were probably liquidating their portfolio. Because if I look at the SIP numbers, the number has come at about Rs 26,000 crores. If I look at SIPs that are going into mid cap and small cap funds, that number is around almost close to 6000 crores.”
#3 No signs of panic in market
The number of SIP accounts stood at 10,26,88,854 in January as per the latest AMFI data. Chaturvedi of Motilal Oswal AMC added that,
“The number of SIPs are at par with last month. So month on month there is no dip. As a result the logic of SIPs coming to halt is flawed. The selling in mid and small caps is not by Mutual Funds. I don’t know who’s selling, but it is not mutual funds.”
#4 Are Mid and small cap funds sitting on cash?
That said, one cannot deny the certain apprehension in the market given the deep cuts in the market. Motilal’s Akhil Chaturvedi does acknowledge the stretched valuations in the space,
“After the correction in the last 25 days, the valuations have eased off, but still there are pockets of slightly higher valuation. So it will be a very stock specific call, depending on individual company growth, and how much PE multiple they are trading at. There are select opportunities. At our end also, we have some cash position in our mid and small cap funds and as we see opportunities over the next 1-3 months, we will try to buy at better levels. So from a short-term perspective, under 1 year, we would still recommend large caps and flexicap funds. And from a long-term horizon, India is a midcap story. So, one needs to decide on allocation depending on the investment horizon and risk appetite. In February midcaps should see a small allocation and it can increase after the current concerns are addressed.”
Timeline crucial for SIP investment say industry stakeholders
Given the recent concerns about SIPs yielding negative returns for investors, Manish Mehta of Kotak Mahindra AMC highlighted a key concern:
“For a lot of new investors who have come in to the market in the last 3-5 years and have so far seen only positive returns, they were worried about volatility and inquiries have definitely coming in from such investors. The answer to everything is the time frame. While in the short-term, equity volatility is something that all of us are aware of, if you stay invested over a long period of time, then there is enough track record available to demonstrate that compounded returns in mutual funds are definitely better than some of the other asset classes.”