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Exit loads dent popularity of Liquid Funds, investors shift focus to Overnight Funds

Amitava Chakrabarty
Liquid Funds, Overnight Funds, Mutual Funds, MF, exit loads on Liquid Funds, equity MF, debt MF, SEBI, AMFI data

To make debt mutual funds (MFs) more secure, market regulator Securities and Exchange Board of India (SEBI) has taken some measures recently. One of such measures was imposition of exit loads on Liquid Funds, around mid-October.

However, according to the recent data released by the Association of Mutual Funds in India (AMFI), after imposition of the exit loads, investors have started shifting their focus from Liquid Funds to Overnight Funds and other short-term funds.

As per AMFI data, the total inflow to Liquid Funds in September 2019 (i.e. before imposition of exit loads), was Rs 15,01,030.29 crore, which fell to Rs 12,32,416.37 crore in October 2019, as AMCs start charging exit loads later part of the month. The effect of exit loads became clearly visible in the following month as the inflow into Liquid Funds diminishes to just Rs 4,29,664.53 in November 2019.

As the investors shifted their focus to Overnight Funds, the inflow into this segment rises from Rs 1,01,930.68 crore in September 2019 to Rs 1,57,484.93 in October 2019, when the exit loads on Liquid Funds came into effect and then jumped to Rs 3,43,891.20 crore in November 2019.

Liquid Funds, Overnight Funds, Mutual Funds, MF, exit loads on Liquid Funds, equity MF, debt MF, SEBI, AMFI data

So, compared to inflows into Liquid Funds, the comparative inflows in Overnight Funds increases from 6.79 per cent in September 2019 to 12.78 per cent in October 2019 and then jumped to 80.04 per cent in November 2019.

"The net inflow in liquid funds is affected due to the institution of exit loads in such funds recently and the consequent shift in investor preferences to overnight funds and even ultra-short term funds. This was very much expected," said Dr. Joseph Thomas, Head of Research – Emkay Wealth Management.

Talking on performance of other categories of funds, Dr. Thomas said, "As far as equity funds are concerned, the numbers indicate a slowdown in investments. SIPs (Systematic Investment Plans) are the only saving grace.

Commenting on outflows, Dr. Thomas further said, "There is some amount of profit booking by investors who have invested much earlier as they may be expecting better levels or opportunities later. The fact that GDP growth is quite low and therefore, the expected earnings too, may be prompting investors to wait for a little more until they see the green shoots."

To deal with current market scenario, Dr. Thomas advised, "The best approach to investing at this juncture will be a phased one over time focusing on quality portfolios and reasonable value based on objective earnings estimates."