Retail equity investors who access stock markets through mutual funds (MF) are making the best use of the current year’s rally. In February, when the markets touched a peak, half-a-million chose to book profits and exit. Sector officials say this has been the largest exodus of retail investors in a month.
Last month, the benchmark stock indices gained 20 per cent at its peak since the beginning of the year. Investors who could not exit in 2011, when market had lost a fourth of its value, did not take chance and moved out.
According to the latest statistics from the Securities and Exchange Board of India, as many as 514,000 equity folios were closed, further reducing the retail investors’ base for the struggling MF industry. Taking the latest exodus into account, the current financial year (2011-12) has so far seen the closure of 1.4 million equity folios.
| EXODUS: RETAIL INVESTORS CASH OUT OF MFS | ||
| Month | Equity folios (Including ELSS) | Net inflows/ (Outflows)* |
| Mar,11 | 3,92,90,289 | -124 |
| Nov,11 | 3,85,21,631 | -49 |
| Dec,11 | 3,84,96,253 | 360 |
| Jan,12 | 3,84,00,605 | -456 |
| Feb,12 | 3,78,86,172 | -2,680 |
| * In Rs crore from pure equity schemes Source : Sebi & Amfi | ||
H N Sinor, chief executive officer at Association of Mutual Funds in India, says this was “no doubt” the sharpest decline in folios in a month. “It is an area of concern,” he adds.
The month also witnessed a 16-month-high redemption at Rs 6,000 crore from equity funds, while the net outflow was the highest since October 2010.
According to the chief investment officer of a foreign fund house, extremely high volatility is taking a toll on investors’ sentiments. “Indian retail investors prefer to stay away when markets correct,” he notes. “And, when a rally comes, they wait for corrections.”
Milind Barve of HDFC Mutual Fund sees the latest investors’ behaviour as normal. “This is an obvious case,” says the chief executive officer of the country’s largest fund house. “Given the market scenario, when equities generated negative returns in 2011, investors booked profits as markets rallied this year.”
The trend of investors’ exit has been continuing for months. In fact, the February statistics demonstrates the desperation of investors to exit equities that have given no substantial returns over the last few years, according to independent experts.
Akshay Gupta, chief executive officer of Peerless Mutual Fund, says investors are increasingly preferring the availability of alternative investment avenues, including fixed deposit and tax-free bonds. This, he adds, is “especially so, when equities are not stoking confidence among investors”.
With such a sharp outflow in February, the overall inflows in the equity segment have barely managed to remain in positive territory so far in the current financial year, at less than Rs 500 crore. During the same period (April-February) last year, the sector had witnessed a net outflow of Rs 13,000 crore, the highest for the fund industry.
Concerns among fund managers remain that the current month continues to show the same trend. They say there is no enthusiasm among investors, who have started questioning the objective of long-term investment, as they have not made gains over the last three-four years.
“Their point is valid,” adds an equity head of a mid-sized fund house. “That is the reason why the industry’s most sold concept of SIPs (systematic investment plans) has been hit hard over the last six to eight months. Cancellations and terminations are happening on a consistent basis.”
A few fund managers who spoke to Business Standard fear the possibility of overall closures of equity folios surpassing last year’s record, if March turns out to be the same as February. In 2010-11, the industry had lost 1.8 million equity folios.
