Note ban boosted inflows into MFs

Mumbai: A sudden surge in bank deposits and consequent reduction in interest rates following the ban on high value currency notes last year helped the domestic mutual fund industry to register a spectacular growth in its assets under management as a certain section of individuals moved their money parked in bank accounts to equity schemes seeking higher returns.

While overall AuM posted a growth of 25 per cent since November 2016, which was almost same for prior eleven months, the equity AUM grew by 36 per cent since the note ban as against a 19 per cent growth during the previous year.  

“This AuM growth is because of two things: an increase in general market levels (which propels the value of invested assets), and new inflows from investors. A lot of people who had their money parked in their Bank accounts have moved to mutual funds. This is natural because with lower interest rates these days, keeping money sitting in a bank account would not earn very high returns,” said Harshad Chetanwala, head, customer delight, Quantum Asset Management Company, told this newspaper. 

According to Morningstar India, equity mutual funds have witnessed a total inflow of Rs 1.35 lakh crore and the balanced fund (mix of equity and debt) has received Rs 74,000 crore between November 2016 and October 2017. 

“This represents a huge jump in the flows received in these categories from a year prior to demonetisation. Individual investors have been fairly active over the last few years and increasingly so in the last one year. Individual investors increased assets in all asset classes, but equities were the favoured asset class, which saw a 46 per cent increase in AuM from individual investors. This has resulted in a shift in the asset allocation towards equities from 59.6 per cent in October 2016 to 64.3 per cent in September 2017,” said Kaustubh Belapurkar, director- manager research, Morningstar Investment Adviser India.

The note ban decision according to market participants also led to a greater channelisation of household savings into the formal financial sector. 

“Previously black money used to get invested into hard assets like property and gold. Post demonetisation, generation of black money was curtailed to large extent by government agencies keeping an eye on cash transactions and a change in people’s mindset in hoarding cash fearing penalties. Indi-viduals have thus been forced to start making investment and capital 

deployment decisions purely on the merit of returns. In the absence of investment opportunities in better yield earning assets, a large part of the liquidity has been diverted to mutual funds,” Saurabh S Jain, managing director, SSJ Finance & Securities, said.