If banks raise interest rates on fixed deposits to 7.5-8%, there could be a flight to these products from mutual funds, Motilal Oswal Financial Services said in a report.
In a report on mutual funds, it noted that equity flows are muted while the debt outlook is positive. Over the past couple of months, a few major trends have emerged, including absence of NFOs, because of the regulations, decline in AUM, sustained high outflows from the debt segment and decline in new SIP account openings, the report said.
The report noted that slowdown in flows is emerging from the business community where there are working capital-related pressures, commission payouts have not been increased, slowdown in SIP accounts owing to fintech players, HNI's inclination towards long-term debt funds is improving while large institutions are expecting further rate hikes and will commit to substantial investments in due course.
From a medium-term perspective, distributors see an opportunity to shift funds from direct equity investments to equity MF schemes, especially in these volatile times. The surge in the number of demat accounts over the past three years provides significant business opportunities.
Among HNIs, there has been a definite slowdown in terms of inflows into equity funds. However, HNIs have been preferring longer duration debt funds increasingly, given that the interest rates have been raised by the RBI. n With respect to passives, while retail segment continues to avoid the space, HNIs are increasingly investing in index funds, the report said.
The strategy of distributors and IFAs (Independent Financial Advisor has been to focus more on SIPs rather than lump sum investments in the current volatile environment.
The number of SIP closures increased in the recent past as the customers sourced by the Fintech companies had enrolled for SIPs of much shorter duration (six months to one year). Further, most of the customers were young students and hence to sustain investments every month is a challenge for them.
There has been a slowdown in business for large distributors in the recent past, wherein the flows into the mutual fund equity products have weakened. The key factors behind this slowdown include a steep correction in the equity markets and increased working capital needs for small businesses given the rise in commodity prices.
With respect to redemptions, no major trends have emerged yet. However, as observed in the past cycles, the redemptions gather momentum when there is a sharp bounce back in equity markets.
