Are investors making a beeline for equity funds once again?

Are investors opting to deploy money in equity funds once again in the current scenario? As things stand now, it is a mixed bag as per industry and market experts. People prefer the highly popular equity linked saving scheme in India (ELSS) for its stellar returns and market performance along with the sizable tax benefits above all else. ELSS tax benefits aside, you can start your ELSS SIPs with smaller amounts which is a major convenience above all else.

At the same time, the average expected ELSS returns are also handsome and will help you surpass inflation. They are often considered superior to regular fixed-income investment options on several counts. However, in the current scenario where the coronavirus pandemic has ravaged the economy, are investors picking up ELSS funds and other equity investments like before? There are several aspects that are worth noting in this regard. One should carefully track all news of global and domestic equity market developments before coming to an informed decision. ELSS schemes have attained immense popularity over the years and the convenience and flexibility involved in ELSS mutual funds and ELSS tax savings contributed towards huge penetration of these funds into several segments of the population, including hitherto traditional and conservative investors.

Reports state for the week that concluded on 21st April this year, investors deployed a whopping $16.4 billion into global bond funds while money market funds mopped up $14.9 billion. Inflows for global bond oriented funds were approximately 2% more as compared to the last week. Yet, outflows of global equity were 33% lower than the earlier week at $10.8 billion which indicates a resurgence of interest in equity investments amongst investors. There was a scenario where money inflow slowed down for equity funds with more investors questioning immense valuations of stocks and the growth in COVID-19 cases and overall economic impact.

European equity funds garnered $8.2 billion while Asian funds saw $1.5 billion in overall inflows. Equities in Europe touched a new peak for this period with more investors anticipating higher development in earnings. The same trend may be reflected in India although it may still take some time. Equity funds in India witnessed $287 million in outflows throughout the week as per available data. This was the largest such outflow observed over the last 3 months or so. FPIs withdrew around Rs. 5,936 crore from stocks in India in the first week of this month. Global investors withdrew around Rs. 9,659 crore in April after investing handsomely over the preceding 6 months. Prior to this considerable outflow seen in April, global investors were putting in money across stocks from October, 2020. They deployed more than Rs. 1.97 lakh crore in equities till March, 2021 including Rs. 55,741 crore in net investments for the first three months of calendar year 2021.

Some experts feel that more redemptions may be in the pipeline if the anxieties persist regarding COVID-19 amongst investors. At the same time, a weaker currency may have spurred some outflows as well. Some opine that profit booking may be another positive side to recent outflows. FPIs invested massively around April last year and markets have grown handsomely ever since. Several stock investments have yielded sizable returns for equity investors as a result. Several FPIs are also starting to book profits on investments made over the last year and this may be the reason behind the higher outflow from equities in India. Till date for 2021, global investors have deployed Rs. 40,146 crore for equities although they withdrew Rs. 15,547 crore from their debt security investments.

With the COVID-19 situation coming in control over the near future, equity investments may start picking up again like they did last time around. There is still some current uncertainty in the market relating to the second coronavirus wave and its economic impact. However, if things improve rapidly, then the positive impact will be felt on equity markets throughout India as per several industry experts.

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