MFs turn net sellers of shares in Sept; continue bond buys

Domestic mutual funds turned net sellers of shares in September as investors rushed to partly redeem their equity fund investments as indices scaled peak levels and also because fund managers preferred to book profit in shares.

In September, mutual funds net sold Rs 764 crore of equities compared with their net investments of Rs 4,094 crore in August, according to data released by the Securities and Exchange Board of India.

Dividend payout commitments in some equity schemes also led to offloading of shares, fund managers said. On the debt side, mutual funds net purchased Rs 9645 crore of fixed income securities compared with Rs 4360 crore in August due to inflows in new short-term income schemes.

Mutual funds were net sellers despite robust responses in new equity funds. As per the initial estimates, three new funds garnered nearly Rs 1,400 crore. This excludes collections of Fidelity Growth Fund and DBS Chola Infrastructure Fund.

As indices scaled peak levels, fund managers adopted a cautious approach on investments due to higher valuations of shares.

Jayesh Shroff, fund manager at SBI Mutual Fund said, "It (net sales) is partly due to redemption (in equity funds) and partly due to profit-booking."

Investors preferred to partly sell their mutual funds investments in September to benefit from the stock market rally. In September, Sensex and Nifty surged 12.88 per cent and 12.49 per cent respectively to close at all-time highs of 17291.10 and 15318.60 Friday.

On September 18, the US Federal Reserve lowered its target rate for federal funds for the first time since June 2003.

The Fed also cut its discount rate by 50 bps for the second time in about a month to 5.25 per cent. Key indices rallied on expectations of further rate cuts by the US Fed, as it would enhance foreign fund flows in India. In September, foreign institutional investors net bought $4.644 billion of Indian equities compared with net sales of $1.86 billion in August.

Out of 20 trading sessions, domestic mutual funds were sellers on nine days. Maximum net sales worth Rs 518 crore were witnessed on September 26 while lowest net sales amounting to Rs 19 crore was on September 18.

On the other hand, highest net investments worth Rs 488 crore was on September 19, a day after rate cut by the US Fed. Lowest net purchases were on September 10, at Rs 19 crore.

Fund houses continued to deploy money collected via new fund offers in fixed income securities.

According to initial estimates, mutual funds garnered nearly Rs 7,500 crore via 29 new schemes. This excludes five new schemes whose collections are yet to be finalised.