Are HNIs shying away from making lump sum investments in mutual funds?

India’s stock markets may be testing lifetime highs, but high-net-worth individual (HNI) investors seem to be staying away from putting lump sum money into mutual funds. 

Lump sum inflows into the equity segment, excluding new fund offers (NFOs), stood at Rs 17,900 crore in October, the lowest since November 2020, according to a report by Mint newspaper.

The slowdown has been on account of HNIs waiting for a better entry point as the stock market nears the record high, weakness in inflows from rural customers, and reduced NFO activity in the equity segment, the report said.

Meanwhile, redemptions in the equity segment have been steady.

Redemptions usually gather momentum when there is a sharp rally in the equity market, and the share of equity in the portfolio allocation models of wealth managers rises above certain thresholds based on the customer risk appetite.

A few other trends have also emerged over the past few months.

These include a revival of NFOs in the September quarter after a hiatus, steady trends in overall assets under management of mutual funds, sustained high outflows from the debt segment, and new highs in monthly SIP inflows.

The report also highlighted that HNIs had shown a rising propensity towards investing in the passive segment, driven by the formalization of their investment process as the next generation takes over.

HNIs also prefer to invest in alternative investment funds and portfolio management services as these products have offered relatively better returns in the past couple of years. This is despite the fact that HNIs bear higher costs than mutual funds while investing in these instruments.