Mutual fund investors continued to pump money into equity programs, taking stock markets to record highs, despite the challenges sparked by the second wave of the pandemic.

Net inflows to equity mutual funds peaked in 14 months of ₹9,235.48 crore in May, data released by the Association of Mutual Funds of India (Amfi) showed Wednesday.

The steady increase in net inflows into equity mutual funds shows that investors are gaining confidence in the outlook for the stock market and are prepared to invest substantially.

In March of last year, these schemes received a net influx of ₹11,484.87 crore, which began to decline after the country was hit hard by the first wave of the pandemic and a strict national lockdown caused stock markets to fall sharply.

Action plans saw a net influx ₹1,783.13 crore in April, when it was ₹5,045.53 crore in May of last year.

“For the third consecutive month, fundraising for equity mutual funds was positive. Investors who have accumulated larger savings over the past year due to lower spending and who have stayed on the sidelines are slowly coming back. Strong equity returns and market stability despite the second wave provide the much needed positive boost, ”said Arun Kumar, head of research, FundsIndia, an online investment platform for individuals.

The multi-cap category was the biggest beneficiary in May, with an influx of ₹1,954.19 crore. Mid and small cap categories received ₹1,368.06 crores and ₹1,080.70 crore, respectively, in May. All equity-focused categories saw net inflows last month, with the exception of the Equity Linked Savings Plans (ELSS) category.

Domestic Institutional Investors (IDIs), which include mutual funds, insurance companies, pension funds, and banks, were net buyers of stocks worth ₹2,067.23 crore in May, helping to increase the benchmark Sensex by more than 6% during the month.

“A significant improvement with daily Covid cases declining steadily, as well as an improvement in the recovery rate, over the past few weeks, reassured investors. Strong quarterly results, a positive long-term earnings growth outlook, and diminishing concerns about a severe impact of the second wave of the pandemic on the economy, are also said to have boosted sentiments. This would have prompted investors to reallocate their assets to equities, ”said Himanshu Srivastava, associate director-research director, Morningstar India.

Overall, share plan buybacks also declined to ₹14,169.63 crores in May from ₹17,282.95 crore in April. Buybacks were, however, much lower in May of last year to ₹7,283.23 crore.

The contribution of monthly systematic investment plans (SIPs) increased slightly to reach ₹8,818.90 crore in May from ₹8,590.89 crores in April.

Debt funds saw an outflow in May, however, mainly driven by liquid and overnight funds. Liquid and overnight funds saw huge cash outflows as short-term rates remained low. Cash and overnight funds have seen an outflow of ₹46,447 crores and ₹11,563 crores, respectively. All other sub-categories of debt mutual funds recorded inflows, except weaker outflows in corporate bond funds ( ₹1,468 crore) and bank debt funds and PSU ( ₹1,340 crores).

The average return on liquid funds and overnight funds over the past year has been 3.15% and 2.99%, respectively, thanks to the accommodative monetary policy of the RBI, which forecast inflation. for fiscal year 22 to 5.1%.

Amfi chief executive NS Venkatesh attributed the cash outflow in May to corporate financing needs. Usually, the months of March, June, September and December record outflows for tax deposits. But, historically, the month of May has not seen such releases.

Regulatory changes aimed at reducing risk in liquid funds are also likely to have had an impact on returns. In 2019, Sebi made it mandatory for liquid funds to hold 20% of their assets in cash, higher than the 10% that the regulator subsequently made for all debt mutual funds. The regulator also prevented them from investing in paper with credit enhancements.