India’s mutual fund sector may have seen its largest erosion in equity investor base in December and failed to stop redemptions from its equity schemes; but there is a positive development knocking on the fund houses’ doors.
Sales of equity schemes (including equity-linked savings schemes or ELSS) have hit a nine-month high. For long, fresh purchases had been stagnating at around Rs 3,000 crore every month, but last month they reached beyond Rs 4,000 crore. This is a clear indication that one section of investors have again started looking at equity investments amid high hopes of an upcoming rally in the stock markets.
It was in March 2011, when fund houses saw robust fresh purchases of close to Rs 5,000 crore. But in the following months it only declined as profit booking continued unabated. Investors pulled out over Rs 10,000 crore during the year, which forced fund managers to remain net sellers in a rising market.
Sundeep Sikka, chief executive officer of Reliance Mutual Fund, says, “Investors had been sitting on the sidelines. For that matter, they have never been aggressive buyers of equities and they come when markets inch higher. However, the recent trend is positive as interest among investors for stocks is gradually building up.”
The year gone by is a clear example when retail investors accessing stock markets through mutual funds gave a thumbs down to equities only to miss the unexpected 25 per cent plus rally. Equity investors’ base got squeezed by a massive 4.5 million, never seen in the sector’s history. On an average, 12,300 equity accounts were getting closed every day in CY12.
| POSITIVE SIGNS Fresh purchases in equity (includes ELSS mutual funds) | |
| Month | Sales (Rs cr) |
| Jan | 3,029 |
| Feb | 3,880 |
| Mar | 4,951 |
| Apr | 2,903 |
| May | 3,343 |
| Jun | 3,057 |
| Jul | 3,311 |
| Aug | 3,385 |
| Sep | 3,185 |
| Oct | 3,072 |
| Nov | 2,988 |
| Dec | 4,344 |
| Source : Association of Mutual Funds in India | |
“Rise in fresh purchases is a positive signal for the industry which shows that investors are turning towards equities. Going forward, I expect it will continue,” says N Sethuram, chief executive officer at Daiwa Mutual Fund. But he adds that equity is a highly risky asset class and investors might continue to prefer risk-free asset classes like long-duration debt funds.
Sikka also cautions investors. “Investors should not get carried away with a market rally. My advice would be one should stick to asset allocation and not attempt timing the market. Rather, they should keep investing in equities regularly.”
Last year, sectoral funds like banking, FMCG and pharma schemes performed far better than the benchmark indices. Currently, there are 44 players in the fund sector managing a sum of around Rs 8 lakh crore as on December 31.
