Despite the recent strong trading sessions in Indian stock markets, it is likely the mutual fund sector would see another month of high redemptions from its equity segment.
In August-October, fund houses recorded the closure of about one and a half million equity folios. Sector executives say this month could also see the same trend, as requests for redemptions continue unabated and funds flowing out are exceeding those coming in.
Avinash Ramnath, head of marketing at Canara Robeco Asset Management Company, says, “The trend of redemptions is continuing. At every high, investors are booking profits or making sure their principal remains intact. When other investment avenues are offering 8-10 per cent risk-free returns, why would investors invest in equities?” At a time when returns from fixed deposits, companies' non-convertible debentures, gold and real estate are fairly high, poor market conditions, coupled with global uncertainties, have played havoc with retail investor sentiment.
| POOR SHOW Net outflows from equity schemes so far this year* | |
| Months | Inflow/ (Outflow) |
| Jan | -380 |
| Feb | -2,809 |
| Mar | 71 |
| Apr | -615 |
| May | 420 |
| Jun | -286 |
| Jul | -949 |
| Aug | -2,286 |
| Sept | -3,559 |
| Oct | -1,984 |
| * Including ELSS All figures in Rs crore Source: Association of Mutual Funds in India | |
Akshay Gupta, chief executive of Peerless Mutual Fund, agrees. The market rally hasn't been secular and sustainable, he says, adding, "That's why investors are losing faith in equities. The industry is likely to witness the same situation in November as has been the case through the last few months."
Fresh inflows continue to be less than the outgo of funds. “Gross sales in equities are poor,” says Karan Datta, national sales head at Axis Mutual Fund.
This is despite the fact that in year-to-date terms, equities, as an asset class, have given the highest returns. Yet, investors are not coming to equity markets, he adds.
The Association of Mutual Funds in India is slated to release the latest data for the sector in the first week of December.
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Sector executives feel a strong and sustained rally is needed to draw investor interest. However, there're quick to add retail investors tend to return only when markets peak.
“That's not the right approach. That way, investors burn their hands and lose faith in equities,” says Datta.
An official from a large-sized mutual fund house says, “No fresh investment through systematic investment plans (SIPs) is being made. Existing SIPs are the only source of inflows, and these, too, are dwindling.”
With cancellations now becoming common for fund houses, the pace at which new fund offers helped the sector garner assets and expand the equity investor base till early 2008 is clearly reversing.