Equity mutual funds are hit hard. Fund houses are losing their equity retail investors at a fast pace. So far in the current financial year, the segment has witnessed an average erosion of 8,600 equity folios (including equity-linked saving schemes) on a daily basis.
This rate of closure is almost double that in the previous financial year. In fact, during the April-July period, the fund market saw closure of over a million equity folios, nearly a third of the combined account closures during the preceding two financial years.
“Investors are now questioning how long is long term,” says Deepak Chatterjee, managing director of SBI Mutual Fund. Normally, investors are advised to stay invested at least for three years. But even after this duration, they have not made money. Agrees Saurabh Nanavati, chief executive of Religare Mutual Fund. According to him, investors who started systematic investment plans more than three years ago, too, are sitting on losses.
| SHRINKING BASE Gain and loss of equity folios since FY05 | ||
| Year | Number of equity folios** | Average gain/(loss) of folios per day |
| 2004-05 | 90,41,075 | 2,760 |
| 2005-06 | 1,72,38,776 | 22,459 |
| 2006-07 | 2,53,76,347 | 22,295 |
| 2007-08 | 3,77,66,259 | 33,945 |
| 2008-09 | 4,11,31,623 | 9,220 |
| 2009-10 | 4,11,18,785 | -35 |
| 2010-11 | 3,92,90,289 | -5,009 |
| 2011-12 | 3,76,47,466 | -4,500 |
| 2012-13* | 3,65,98,141 | -8,601 |
| * Till July, 2012; ** Including ELSS | ||
According to the capital markets regulator, Securities and Exchange Board of India (Sebi), in July alone, 327,000 equity accounts were closed - either terminated or cancelled. This brings the overall equity investors' base further down to 36.6 million, from 37.6 million in March 2012.
“This is shocking that despite having taken various measures in the direction of investors’ awareness programmes, we (industry) are unable to arrest the decline in (equity) folios,” says the chief marketing officer of one of the top 10 fund houses.
Interestingly, during the heydays of the sector in 2007-08, when indices were climbing to newer highs, fund houses added as many as 34,000 equity folios a day. However, later, abolition of entry load on equities in August 2009 kept distributors away, leading to a sharp fall. Since the beginning of FY13, the BSE benchmark index, the Sensex, has shed only 168 points, or less than a percentage point, from 17,404 on March 30 to 17,236 on July 31, though with much volatility during this period.
“There are all sorts of reasons behind the steep decline,” explains the chief executive officer of a new entrant, which launched its first equity scheme last year. According to him, “There are hardly any renewals of systematic investment plans, profit booking amid volatile stock markets, cancellations of existing folios or, for that matter, no transactions of the scheduled payments leading to closure of folios. On top of it, of course, the persistent weak equity markets.”
Executive vice-president of DSP BlackRock, Ajit Menon, told Business Standard fresh investments were lesser than the redemptions in the equity segment, which showed investors were shying away from equities.
During April-July, net outflows from the equity category stood at Rs 1,430 crore. Assets under management in the segment were Rs 1.78 lakh crore, making it a fourth of the industry’s overall assets of Rs 7.3 lakh crore as on July 31.
The steep pace (over four-fold increase) at which fund houses added investors to their kitty, especially between 2004-05 and 2008-09 mainly because of mis-selling by distributors, seems to have started hurting the industry. It appears the adage ‘slow and steady wins the race’, is finding few takers among fund houses.
