Out of Favour

Even as there is emphasis by the government on manufacturing and defence in India, investors are losing interest in mutual fund schemes themed on those

- By NASRIN SULTANA

Theme-focussed funds rode on optimism as the government prioritised manufacturing, defence, and innovation through policy incentives and budgetary support.

But investor appetite for mutual funds with these themes now seems to be waning, resulting in low inflows or redemption pressure.

Redemption in manufacturing (within thematic schemes) was at a seven-month high in June at ₹578 crore, shows latest data from the Association of Mutual Funds in India (AMFI). This compares to a redemption of ₹573 crore in May.

Net inflows into manufacturing have been consistently under intense redemption pressure. In June last year, manufacturing-themed focussed funds received a net inflow of ₹4,504 crore. However, net inflow into these funds thereafter declined month after month to gradually turn into a redemption of ₹7 crore last December. (Redemption is partial or full exit of investors from mutual fund schemes.)

"The most pronounced investor enthusiasm since 2023 was seen in manufacturing, innovation, business cycle and infrastructure-themed funds. However, manufacturing has already witnessed redemptions over the past few months, and inflows into other categories have also decelerated," says Sunil Jain, analyst, Elara Capital.

Net inflows into defence-themed funds, too, have slowed to ₹162 crore in June from ₹168 crore in previous month. This compares to a net inflow of ₹258 crore in July and ₹147 crore in June last year.

According to Jitendra Sriram, senior fund manager-equity, Baroda BNP Paribas Mutual Fund, some part of the redemption in the manufacturing category could probably be attributed to the flat performance of Nifty India Manufacturing index (on a one-year basis) as broader markets have seen slightly better returns.