There was one-time gross inflows in the equity segment, excluding New Fund Offers (NFOs). 17,900 in October, the lowest since November 2020, according to the latest report by Motilal Oswal Financial Services Ltd.
The slowdown is due to large High Net Worth Individuals (HNIs) waiting for better entry points as the equity market nears a new high, weakness in inflows from lower-tier customers in rural areas, and a reduction in large-scale NFO activity Has come The fund house in the equity segment, said the report.
According to Motilal Oswal Financial Services (MOFSL), redemptions in the equity segment have remained stable.
The report said, “As seen in previous cycles, when there is a sharp rally in the equity market and the share of equity rises above a certain threshold (based on client risk appetite) in the portfolio allocation model of the money managers, So redemption takes hold.” Told.
MOFSL interacted with some of the leading mutual fund distributors and institutional sales representatives to assess customer behavior in the current environment.
According to the financial services company, over the last few months, some key trends have emerged: resurgence of NFOs in 2QFY23 after a hiatus, steady trend in overall AUM, higher outflows from the debt segment, and new high inflows in monthly SIPs.
The report also highlights that HNIs have shown an increasing tendency to invest in the passive segment, driven by the formalization of their investment process when it comes to the next generation.
HNIs also prefer to invest in alternative assets (such as alternative investment funds and portfolio management services) as they have given relatively better returns over the years. This is despite the higher cost that HNIs have to bear as compared to mutual funds.
According to MOFSL, traditional fixed income products may now attract attention.
“With the increase in interest rates by RBI (by 190 basis points in the last seven months), fixed deposit rates have gone up. Weighted average fixed deposit rates for private/PSU banks increased by 35bp/30bp. With further rate hike expected, fixed deposits may find support from HNI customers,” the report said.
The report said that large corporate loans are the key drivers of flows in the segment.
Currently, they are looking forward to further hikes till at least March 2023. Institutions are also looking at investing in fixed deposits and non-convertible debentures (NCDs) versus debt funds to avoid a significant mark-to-market effect. With another 50 bp rise, or if the yield on 10-year G-Secs touches 8%, flows may shift to longer-dated debt assets, translating into better returns.
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