Investors decided to engage in profit booking, which explains the net mutual funds outflow in July. Image Credit: EPA

Mumbai: Equity mutual funds in India suffered their first monthly outflow in more than four years as retail investors cashed out to tide over the pandemic-related cash crunch even as stocks continued their ascent.

Stock plans lost a net 24.8 billion rupees ($331 million) in July, compared with an inflow of 2.41 billion rupees in June, according to data from the Association of Mutual Funds in India. That's the first outflow since March 2016, when funds lost about 14 billion rupees.

Net investments into equity plans have been declining for three straight months as savers hold off from adding to investments in a market that has erased bulk of the pandemic-fueled losses of 2020 despite climbing cases and weak economic data. Risk aversion has returned to other markets too.

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US investors yanked $42 billion from equity-focused exchange-traded and mutual funds last month even as the S&P 500 Index's logged its best July in a decade.

Clear out, partially

"The market has been reasonably buoyant, so investors have taken some profit off the table," said Kaustubh Belapurkar, director of fund research at the India unit of Morningstar Investment Adviser. "The size of the outflow isn't dramatic enough to limit fund managers' investments."

Demand for safe-haven assets is intact, with gold ETFs posting inflows for a fourth month, according to AMFI numbers. Investors put in 629 billion rupees into debt funds, while money market and liquid plans took in a total 277.9 billion rupees.

"Monthly inflows have been significant for debt funds, indicating investor preference for safety," said Arun Kumar, head of research at FundsIndia.com. "The flows show a shift toward safety as investors wait to get clarity on their cash flows."

Institutional investors played an important part in supporting the market when foreigners dumped shares in March. The shrinking in the assets they manage can weaken their ability to limit the damage to local stocks if foreign investors head for the exit again.

India's S&P BSE Sensex is up more than 45 per cent from its March 23 low, thanks to the growing interest of first-time investors and three months of purchases by overseas funds. Global investors have plowed about $1.2 billion into local shares so far in August.