Why is mutual fund experiencing so much inflow now?

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Equity mutual funds have witnessed inflows at a 14-month high of Rs 9,235 crore in May, making it the third consecutive monthly infusion. This happens despite the challenges triggered by the second wave of the COVID-19 pandemic and it shows that investors have finally started investing in Indian equities like before.

According to Harsh Jain, Co-founder and COO, Groww – an investment platform, this is because fears of an economic downturn have been largely addressed.

“When the pandemic first struck, some investors withdrew and got out of markets while some waited on the sidelines and weren’t investing any fresh money. The anticipation was that the markets would see further falls due to rising cases and the second wave. But now, after the second wave has hit us and started subsiding, retail mutual fund investors are beginning to feel that the markets might not go down anymore due to the pandemic and that staying out of the markets might prove to be a bad move,” explained Jain.

It’s crucial to note here that despite the massive second wave and the resulting lockdowns, the markets haven’t been adversely affected by the hopes of a quick recovery soon.

In the period since the pandemic first struck, Jain pointed out that the markets fell massively by around 40 percent, recovered fully, and then proceeded to touch new highs.

“Hence, investors who chose to stick with the markets have made massive gains over the same period,” he stressed.

Manish Mehta, Head Sales and Marketing at Kotak Mahindra Asset Management Company Ltd, said that the turn in the economy, resumption of business activities, positive returns on the markets and mutual fund schemes in the last one year and right guidance given by the mutual fund distributors to clients has further given confidence to investors to continue investments in mutual funds.

HNI investors, he added, who redeemed mutual fund investment in March – April of 2020 could be feeling left out as the market continued with an upward trajectory. Market consolidation in the past few months gave such investors an entry into mutual funds.

Mehta further said that they have recently witnessed several first-time investors using the Systematic Investment Plan (SIP) route to start their investment journey through mutual funds recently.

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