June was a depressing month for the mutual fund industry. Redemptions were unusually high at Rs 42.7 billion accounting for close to 80% of total inflows.

According to figures released by the Association of Mutual Funds in India (AMFI), the mutual fund industry witnessed total inflows of Rs 55.5 bn in June 2000. However of some concern is the fact that investors exited from their funds in a big way. Total redemptions in the month amounted to Rs 42.7 bn, which means that redemptions were around 80% of total inflows. To put it simply, out of every Rs 100 that was invested in the mutual fund industry in June, Rs 80 was pulled out.

Redemptions made by open-ended funds

	Rs m	% of total redemptions
Income	13,920	32.6
Growth	4,790	11.2
Balanced	980	2.3
Liquid	14,460	33.9
Money Mkt	1,230	2.9
Gilt	5,130	12.0
ELSS	60	0.1

As the table above indicates, income and liquid funds witnessed significant redemptions during the month. Between them income and liquid funds accounted for Rs 28.4 bn redemptions, which is 66.5% of total redemptions.

Liquid funds are generally used by corporates and high networth individuals to park surplus funds. The very nature of liquid funds exposes it to a lot of volatility as investors enter and exit with high frequency depending on how they want to utilise their surplus cash. Income funds with high exposure to money market instruments (CDs, CPs, call money) and govt securities are also used by investors as quasi-liquid funds, as they offer higher returns than comparable liquid funds.

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