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Is India's mutual fund industry back to square one? Of course not, when one looks at the sector's profitability or revenues (which is hitting 3 and 5 year highs, respectively). But in terms of retail investors' exodus from equities, it is, indeed, true.
And, this is precisely what happened in September, too. Number of equity folios declined by over half-a-million in a single month. With this, mutual fund industry not only loses nearly a crore of equity investors' base since March, 2009 but also faith (which takes considerably long time to build) of thousands of investors in equity markets.
At a time when top ten fund management companies are making a killing in terms of net profit of nearly a whopping Rs, 1,100 crore (for the financial year 2012-13), poor retail investors have no options but to perish and be at the mercy of precarious market movements.
Investors have been waiting not for a year or two but for more than five years. And, this wait is not to book astronomically higher profits but to take away at least the principal investments they made when markets were inching higher to touch peaks in 2007-2008. In several cases, they do not mind even if market value of their investments is a few thousand rupees less.
But when adjusted to inflation for these years, it would not be surprising to see erosion of nearly half of the investment value in absolute terms. In 2009-10, chief executive officer of a large fund house had told Business Standard, "Only way to beat inflation is investment in equities" It's true to a large extent. But the fact is, this did not work out in last five years. Though, investment officers are quick to call this as an "aberration" and refrain from taking responsibility of what once was widely-spread among investors - "three year is a long-term period".
Investors seem to be not trusting the so called market experts.
Not long back that Amfi's chief executive H N Sinor had termed less than a lakh monthly reduction in equity folios as a "trend reversal". In August, only 63,000 equity folios stood closed - the lowest since December, 2011. He had further added that it should sustain as investors were coming back to equities as confidence in the market was reviving.
Sinor was not alone in thinking that way. Several other industry executives were of the view that investors are looking again at equities. But how clueless fund industry was can easily be gauged from the fact that, within a month time, investors pressed exit button yet again and exodus followed. So far this financial year (April-September), mutual fund sector has seen closure of a little over 2 million equity folios. Which means, industry is losing over 11,000 equity folios every day.
Now the question is : Is it the "trend reversal"? or Is it the barometer of "confidence coming back"?
Certainly not. Investors gave enough time to industry to manage their funds. What's wrong if they are taking their money back whenever the value nears closer to their costs? After all, they are finding other avenues to park their hard-earned money where they can at least get an assured post-tax returns of 8-10%.
U K Sinha, chairman of the Securities and Exchange Board of India (Sebi), loses no opportunity to talk about investors' safety and continuous low penetration level of mutual fund products. Despite Sebi's several reforms in the last few years to help the sector and industry body Association of Mutual Funds in India (Amfi)'s steps for investors' awareness, the reality remains that investors are not making money from being invested in mutual funds.
The 20,000 mark on Sensex is the much looked after level which triggers exodus of retail equity investors. And this phenomena is not new. Over the last one year, whenever Indian markets have even hovered near this psychological index levels, investors have rushed in herds to redeem their invested sum.
Why does this happen always? Why have fresh sales gone for a toss?
This is all happening on the back of losing faith on the industry's capability of managing money. Investors are already raising questions on how long is long? During 2005-2008, fund houses have been telling investors that invest with at least a three years' horizon. And now, they are quick to blame retail investors that they come at a wrong time and get stuck.
It's surprising to see at a time when investors have failed to make money, profitability of the fund houses are touching new highs. A Business Standard report suggests that India's mutual fund sector's profitability is set to hit a three year high while revenues are to touch a five year highs.
It's good, if not for the industry as a whole (as still half of them are running in losses) but at least for the top ten fund houses. It is needless to say that most investors are captured by the top few fund houses only.
And these fund houses are minting money for years now.
Will they bother whether investors (read retail investors) make money or not as long as their profitability is on the rise?
