Funds ride high on new money

Five schemes draw Rs 8,380 crore in Jan.

In a tell-tale sign of all round bullishness, five mutual fund schemes raked in Rs 8,380 crore in January "" the highest-ever in one month. A sizeable chunk of the inflows consists of fresh money and not reallocation of funds from existing schemes.

The five schemes that closed for subscription last month were: SBI Bluechip (Rs 3,000 crore), UTI Leadership (Rs 2,000 crore), HSBC Advantage India Fund (Rs 1,650 crore), HDFC Long Term Equity Fund (Rs 1,250 crore) and Fidelity ELSS (Rs 450 crore).

To put this in context, total fund collections last year was around Rs 22,000 crore and, in 2004, it was around Rs 9,000 crore.

The January affair may not be a flash in the pan. In February, about 10 funds are open for initial subscription.

The list includes Chola Contra Fund, Tata Tax Advantage Fund, Deutsche Tax Saving Fund, Kotak Lifestyle Fund, Prudential ICICI Fusion Fund, Standard Chartered Imperial Equity Fund, ING Vysya ATM, Birla Infrastructure, Reliance Equity Fund and Baroda Global Fund.

Given that the threshold for equity linked savings scheme is now Rs 1 lakh, more retail money is set to flow into these schemes and this can further push up collections.

Total equity assets, including growth funds and equity-linked savings schemes, at the end of January 2006 stood at Rs 74,443 crore. Sales during January amounted to Rs 5,451 crore (inclusive of the Rs 1,317 crore collected by Franklin Small Companies Fund), while total redemption was Rs 6,205 crore. So, the net outflows were to the tune of Rs 754 crore.

Assuming that this entire outflow was a result of the churning which got redirected to new fund offerings, it might be said that over Rs 7,500 crore of fresh money was collected.

"This is a marked change from the past when inflows into new funds were more or less off-set by redemption in existing schemes," said Sameer Kamdar, national head (mutual fund), Mata Securities, a debt broking outfit.

In the past, mutual fund net accretions had remained low despite huge collections in new fund offerings as investors invariably pulled out of the existing schemes to finance new fund purchases. Substantial dividend payouts and profit booking by cautious investors also put a lid on the inflows.

"The number of applications in new fund offerings has been growing steadily. This indicates greater retail participation," said J Rajagopalan, managing director, Bluechip, Mumbai based fund distribution company.

"A bulk of the sales in the SBI Bluechip came from the distribution wing of its parent bank which again is retail money," said Rajagopalan.

Market experts feel that with the new money coming in, the market will find strong support even if the foreign fund flows are indifferent. Over the past couple of months -- December and January -- mutual funds sales on the bourses outstripped purchases. Mutual fund net sales amounted to Rs 2,567 crore as fund collections were weak.

After being flooded by foreign funds in the past couple of years, the stock market seems to be attracting domestic investors.

Market experts believe that though foreign fund flows will continue to be strong, the markets will be driven by domestic liquidity going forward.

Even as the stock indices have run up sharply and are ruling at life time highs, there seems to be no end to the appetite for stocks among investors at home.