Equity mutual funds are hit hard. Fund houses are losing their equity retail investors at the fastest pace. Believe it or not, it's the reality as fund industry has witnessed an average erosion of a whopping 8,600 equity folios (including equity-linked saving schemes) on a daily basis so far in the current financial year.
This rate of closures is almost double than what was seen in the previous financial year. Rather, during April-July period, fund market saw closure of over a million equity folios which is nearly one-third of the combined account closures during preceding two financial years - FY10 and FY11.
"Investors are now questioning how long is long-term," says Deepak Chatterjee, managing director of SBI Mutual Fund. It's true as normally investors are advised to stay invested at least for three years. But even after this duration, they have not made money. Agrees Saurabh Nanavati, chief executive of Religare Mutual Fund. According to him investors who started systematic investments more than three years ago too are sitting on losses.
| GAIN AND LOSS OF EQUITY FOLIOS SINCE FY05 | ||
| Year | Number of Equity Folios ** | Average Gain/(Loss) of folios per day |
| 2012-13* | 3,65,98,141 | -8,601 |
| 2011-12 | 3,76,47,466 | -4,500 |
| 2010-11 | 3,92,90,289 | -5,009 |
| 2009-10 | 4,11,18,785 | -35 |
| 2008-09 | 4,11,31,623 | 9220 |
| 2007-08 | 3,77,66,259 | 33,945 |
| 2006-07 | 2,53,76,347 | 22,295 |
| 2005-06 | 1,72,38,776 | 22,459 |
| 2004-05 | 90,41,075 | 2,760 |
| * Till July, 2012 ** Including ELSS Source : Securities and Exchange Board of India (Sebi) | ||
| STEADY MONTHLY DECLINE IN NUMBER OF EQUITY FOLIOS SO FAR IN FY13 | |
| Month | No of Equity Folios |
| April | 3,73,47,567 |
| May | 3,71,60,606 |
| June | 3,69,25,699 |
| July | 3,65,98,141 |
| Source : Securities and Exchange Board of India (Sebi) | |
According to capital markets regulator Securities and Exchange Board of India (Sebi), in July alone 3.27 lakh equity accounts stood closed, either terminated or cancelled. This brings the overall equity investors' base further down to 36.6 million from 37.6 million in March, 2012.
"This is shocking for the industry that despite having taken various measures in the direction of investors' awareness programmes, we (industry) are unable to arrest the decline in (equity) folios," says chief marketing officer of one of the top 10 fund houses.
Interestingly, during the heydays of the sector during 2007-08 when indices were climbing to newer highs, fund houses added as high as 34,000 equity folios per day. However, later abolition of entry load on equities in August, 2009 kept distributors away leading to sharp fall in equity folios.
Since the beginning of FY13, BSE benchmark index, the Sensex, shed only 168 points or less than a percentage point from 17,404 on 30 March to 17,236 on 31 July, thought it was full of volatility.
"There are all sorts of reason behind the steep decline," explains chief executive officer of new entrant which launched its first equity scheme last year. According to him, "There are hardly any renewals of systematic investment plan (SIPs), profit booking amid volatile stock markets, cancellations of existing folios or for that matter no transactions of the scheduled payments leading to closure of folios. And top of it, of course, the persistent weak equity markets."
Executive Vice President of DSP BlackRock Ajit Menon told Business Standard that fresh investments were lesser than the redemptions in equity segment which showed investors' were shying away from equities.
During April-July, net outflows from equity category stood at Rs 1,430 crore. Assets under management in the segment were Rs 1.78 lakh crore, making it one-fourth of industry's overall assets of Rs 7.3 lakh crore as on 31 July.
The steep pace (over four-fold increase) with which fund houses added investors in their kitty, especially between 2004-05 and 2008-09 mainly because of mis-selling by distributors, seems to have started hurting the industry itself. It appears "Slow and steady wins the race", the well known words of wisdom found few takers among fund houses.