After the stock market, investors also moved away from mutual funds

- Volatility of equity market and decline in attractiveness of bank FD rate rising funds

The lackluster performance of the equity market over the past one and a half years has proved challenging for the spread of mutual funds. In the first 11 months of the current financial year, the industry added only 3.7 lakh new investors, while in FY22, about 1 crore new investors were added. This information is derived from industry data. Mutual funds identify new investors through their PAN account. Investment in mutual fund through new pan is treated as addition of new investor.

According to mutual funds, poor short-term performance of equity schemes has led to less inflow of new investors. When investing in any asset class, an investor looks at past returns. An analysis of the past one-year performance of equity mutual fund schemes shows that nearly half of the schemes are in the red and only 20 per cent have returned more than 5 per cent.

This is mainly due to market conditions. After record gains in previous years, the participation of new investors has decreased because the market was very strong at that time. The poor performance of equity schemes has been attributed to the weakness of the markets over the last one and a half years.

Since then the Nifty-50 has been in the range of 16,000 to 18,000, reaching a high of 18,000 in October 2021. Overall, Sensex and Nifty have lost 2.6 and 1.6 percent respectively in the last 18 months.

The Russia-Ukraine crisis, the Hindenburg affair and bank collapses in the US and Europe, in addition to relatively high valuations, a global rise in interest rates and foreign investor withdrawals have affected markets.

Equity mutual fund schemes have performed very well at the end of the last two financial years. Funds have added record new investors in the last financial year. In the financial year 2022, the Nifty had increased by more than 18 percent. Equities are trending at year-ago levels due to lack of high-yielding investment options and strong momentum in equity markets. But interest rates are rising and bank fixed deposits are proving to be a hindrance for mutual funds to attract new investors.

In 2020, after the RBI cut interest rates due to Covid, the bank FD rate went below 5 percent, but now it is around 7.5 percent.

Absence of attractive new fund launches in equities has also slowed the flow of new investors. However, existing investors continue to invest in mutual funds regardless of market conditions.

In the last 12 months, investors have invested Rs. More than 10,000 crores have been invested. Also, the report suggests that investors tend to invest more in mutual funds during market downturns.

The third quarter of FY 2022-23 saw a total net investment of Rs 18,952 crore in open-ended equity funds. The total AUM of these funds in December 2022 was Rs.15.25 lakh crore, which is 4 percent more than in September 2022.

The flexi cap equity category hit a record high in December last year. His total wealth has reached 2.46 lakh crore rupees. In 2022, there was a modest increase in investment in this category. The investment in 2022 was Rs 21,997 crore against the investment of Rs 17,882 crore in 2021. However, in 2022, the flexi cap category saw the highest inflow among open-ended equity asset classes.

AUM of the large-cap equity equity category reached a record high of Rs 2.42 lakh crore in December 2022. The growth of this category was 9 percent year-on-year. However, compared to the previous quarter, assets have increased by 4 percent. In the third quarter of the financial year 2022-23, from large cap funds Rs. A net outflow of 892 crores was observed.