For the country’s mutual fund (MF) sector, the year 2012 has proved a nightmare in the equity segment.
Fund houses have lost a daily average of 12,000 equity folios so far this financial year, the fastest decline in the sector's history. They lost close to half a million equity folios for a fourth straight month in November, an overall loss of three million so far in 2012-13.
Data from the Securities and Exchange Board of India (Sebi) shows November saw closure of 483,000 equity folios (including equity-linked saving schemes, ELSS). This has pulled down equity investors' base to below 35 million.
Equity benchmark indices have gained a little over 20 per cent this year but investors, primarily retail, have chosen to book profits and close their investment accounts.
| SHRINKING EQUITY INVESTOR BASE Gains and losses of equity folios* since FY05 | |
| Year | Avg gain/(loss) of folios per day |
| 2004-05 | 2,760 |
| 2005-06 | 22,459 |
| 2006-07 | 22,295 |
| 2007-08 | 33,945 |
| 2008-09 | 9,220 |
| 2009-10 | -35 |
| 2010-11 | -5,009 |
| 2011-12 | -4,500 |
| 2012-13** | -12,547 |
| * Including ELSS, ** Till November 2012 Source : Securities and Exchange Board of India | |
At a time when the business environment is described as poor, with no fresh money coming in, the continuous account closures is proving a double whammy. Equity is the only MF segment dominated by retail investors, largely in the form of systematic investment plans (SIP).
During November, the benchmark stock indices inched up 4.5 per cent. The movement came in the latter part of the month. Pure equity funds and ELSS together saw redemptions of units worth Rs 4,513 crore, against a fresh purchase of Rs 2,988 crore, a net outflow of Rs 1,525 crore from the segment.
Sector officials Business Standard spoke with say a consistent secular rally in the stock markets is needed. Unless that happens, it's hard to attract and retain investors.
Till July this year, the pace of loss in the equity investor base had already surpassed the past two financial years, reaching a little over 8,000 a day. It intensified from there, as the indices inched up.
"At every single rally, there are redemptions. In a way, it's good for investors who had been stuck for long but for the industry in general, it's proving a big pain, as acquisition of a retail investor comes at a large cost," explains the chief marketing officer of a large fund house.
Between 2005 and 2009, fund houses had rapidly garnered assets and speedily expanded the investor base. The peak was during 2007-08, when it was adding an average of 34,000 folios daily. The pace fell thereafter and turned into negative territory in 2009-10.
Currently, of the 1,231 schemes MFs offer to investors, 345 are equity-related. As on November 30, equity assets at Rs 1.9 lakh crore comprised 24 per cent of the sector’s assets under management.
