No matter how hastily the government swings into action or what measures the capital markets regulator takes to help fund houses; retail investors seem in no hurry to invest in equities. It is the same old story, of high redemptions and poor sales, for mutual fund equity schemes.
The reality this time is the most sombre so far in the current financial year. In August, the net outflow from equity schemes (including equity-linked saving schemes or ELSS) has hit a six-month high at Rs 2,286 crore, according to the latest statistics released by the Association of Mutual Funds in India (Amfi).
This means against sales of Rs 3,400 crore, close to Rs 5,700 crore were redeemed by retail investors who access capital markets through MFs. Sector officials find themselves clueless on how to arrest the exodus. Earlier, Ajit Menon, executive vice-president of DSP BlackRock, had told Business Standard in summary:"New money coming in is less than what's going out."
The national sales head of a large fund house, who first declined to talk on the issue, says, "Understanding investors' sentiments is not easy. It has now become an every-month phenomenon, despite making all possible efforts to retain clients." Though, he added, recent cuts in deposit rates by several banks in the range of 50-100 basis points might see get some traction for MFs.
Subdued performance of the equity markets is the main culprit, say sector executives. "This is taking a toll on the performance of schemes, which is not going well with investors. During August, whenever markets rallied, we witnessed requests for redemption from investors who wanted to book profits," says the chief executive officer of small-sized fund house.
India is not an exception. This trend is being witnessed across the BRIC nations, reports Reuters. According to it, investors fed up with years of poor returns are deserting BRIC equity funds, pushing share valuations to record cheap levels and questioning the future of the high-profile investment theme. Lack of reform has pushed India's once-roaring growth to three-year lows; China's 10-per cent growth spurt is fading; Brazil's economy is stagnating and Russia remains hostage to oil prices, adds the report.
It is worth remembering that while growth, underpinned by demographics and consumption, was BRIC funds' main sales pitch, it was never a guarantee of equity profits. As an oft-cited study from Credit Suisse/London Business School notes, the link between growth and stock market performance is “statistically weak and often perverse”. "There were a lot of opportunistic fund launches, based on the false premise that you could separate the BRIC markets from others because of their supposed GDP potential and size," said John-Paul Smith, head of emerging equities at Deutsche Bank.
China makes up 40 per cent of the MSCI BRIC index. But during two decades of double-digit gross domestic product growth, equity investors have swallowed a 10 per cent loss.
Back in India, apart from equity related funds, other fund categories, including balanced, gilt and other exchange-traded funds, also saw net outflows. Liquid and money market schemes continued to pull in more fresh inflows, at Rs 14,775 crore, while income funds saw net inflows of Rs 7,548 crore in August.
According to Amfi, the sector’s overall net assets under management as on August 31 was Rs 7,52,548 crore against Rs 7,30,361 crore as on July 31.
