Volatile stock markets and better returns in other assets make investors wary of equities.
Last month, investors pulled back from investing in equity MFs, which shrank equity investors’ base for the first time since August. According to data available with the Securities and Exchange Board of India, 61,000 equity folios were closed during the month.
Earlier, there was anticipation that the European crisis would be resolved soon and the sharp August correction turn out to be a short-term phenomenon, according to fund managers. “Investors have had enough. They now understand it is not a short-term crisis and it makes sense to move to safer bets,” said Akshay Gupta, chief executive officer, Peerless Mutual Fund.
This was clearly indicated from the drastic drop in fresh inflows of Rs 200 crore into equity schemes in October, compared to Rs 1,400 crore in the previous month. For that matter, fresh inflows stood at Rs 2,000 crore in August, as a whopping 120,000 new investors stepped in.
“When equity markets were down, investors stepped in during August. However, in October, fewer investors came in. People have become mature and are waiting for the right time to invest,” said Jimmy Patel, chief executive officer of Quantum Mutual Fund.
Domestic benchmark indices corrected heavily in August, as they witnessed an erosion of over eight per cent in their values. Comparatively, in October, the Sensex firmed up close to eight per cent, which kept investors away.
Rather, investors chose to keep pumping their surplus into income and gold funds — the segments which have continuously been seeing rising interest among investors. During the period, the fund industry added 23,000 new investors in the income category, while Gold exchange Traded Funds (ETFs) attracted 36,000 more customers. Gold had become everybody’s favourite and October being a traditional month, investors preferred investments in gold, said fund managers.
Sanjay Sachdev, chief executive officer, Tata Asset Management Company, said, “Many investors opted to redeem their investments, which hit the equity folios. Further, there is a clear trend that customers are going for more fixed income funds.”
“Why would people want to get into equities when they understand these might not perform?” asked Gupta. “They have waited enough, but equities continue to give negative returns. Money is flowing into fixed categories, whether it’s bonds or companies’ non-convertible debentures. At least, in those assets, there is a possibility of earning returns in access of 10 per cent,” he added.
As on October 31, according to the Association of Mutual Funds in India, assets under management stood at Rs 695,437 crore. Of this, equity assets contributed 23 per cent at Rs 1,61,532 crore, against 24 per cent of the industry’s assets in September.