Retail investors have tightened their fists as far as putting money in equities through mutual funds (MFs) is considered. This could, fund managers say, bring an end to the three consecutive months of positive inflows in the MF industry.
Since August, when the industry saw its three-year highest inflows in equities, the flows have been slowing. For instance, from Rs 2,500 crore, it dipped to Rs 200 crore in October. And, fund managers are apprehensive flows might get into the negative territory this month.
With global uncertainty showing no sign of ending and continuous attractive returns on other saving investments, including fixed deposits and non-convertible debentures, why would investors take risks, ask fund managers. According to the Association of Mutual Funds in India, sales of equity products touched their lowest this financial year in October at Rs 3,734 crore, down over Rs 900 crore compared to the previous month.
| TIGHT GRIP Month-wise inflows and sales of equity* | ||
| Month | Inflows/ (outflows) | Sales |
| Apr | -1,365 | 3,928 |
| May | 1,478 | 5,988 |
| Jun | -60 | 4,367 |
| Jul | -869 | 3,826 |
| Aug | 1,986 | 5,820 |
| Sep | 1,440 | 4,657 |
| Oct | 210 | 3,734 |
| Note: MFs so far in FY12 *Includes equity-linked-saving-schemes (ELSS) All figures in Rs Cr Source : Association of Mutual Funds in India | ||
“Though there has been no abnormal redemption so far this month, inflows in equity schemes have become weak,” said Srinivas Jain, chief marketing officer at SBI Mutual Fund. In case the flows turn out to be negative, November would turn out to be the fourth month this financial year to witness outflows.
During April-October, equity schemes garnered Rs 3,000 crore fresh money, against a net outflow of Rs 18,000 crore in the same period last financial year. However, given the redemptions of Rs 7,000 crore in one of the months last year, fresh inflows of Rs 3,000 crore look meager and can be wiped out, if stock markets’ situation worsens.
Ajit Menon, executive vice-president and head of sales at DSP BlackRock, said, “Inflows in equity (schemes) have reduced. With global news flow, it seems uncertain times are far from over. Moreover, at a time when other saving schemes are offering lucrative returns, why would investors take risk by investing in equities?” Fund managers say flows are coming into the monthly income plans.
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According to him, till the end of last week (November 25), the industry has managed to see positive flows in equities. “But it will depend on how markets behave during the last days of the month. If markets rise, there would be redemptions,” he said. After being beaten down last week, the benchmark indices today saw a sharp rally of over three per cent. “I anticipate investors would take a sell call as markets rally,” said Menon.
Last week, the Bombay Stock Exchange Sensex closed at the lowest level in the month, witnessing an erosion of over 11 per cent.
Fund managers admit they had anticipated the European crisis would be a matter of few months. “However, the way uncertainty is continuing, it does appear equities’ non-performance would continue for a much longer period,” said chief executive officer of a mid-sized fund house.