A section of equity mutual fund investors - mainly the smart investors - have either redeemed their units thus far this year or there is a lot of re-alignment of funds in their portfolios resulting into a churning of money from one set of funds to other funds.
In the last five months (January- May), equity schemes have seen robust inflows of Rs 40,000 crore on a net basis. This essentially means that quantum of money coming in is outpacing the amount of money going out. However, if one looks at the overall gross sales, which stands at a whopping over Rs 1,12,000 crore during this period, it suggests that redemptions have been on a much higher side.
Statistics from the Association of Mutual Funds in India (Amfi) show that in a span of the first 5 months of the calendar year 2017, investors have redeemed equity units worth Rs 72,708 crore. This translates into an average redemption of over Rs 14,500 crore each month at a time when Indian stock indices are hovering at their historic peaks.
Kaustubh Belapurkar, director (fund research) at Morningstar India, says, "There would be investors who are booking profits and at the same time one can't deny the fact about re-alignment of portfolios - shifting from one fund to other. Investors who have invested for more than three years are sitting on reasonable profits, so it's normal for them to take some money off the table."
Over the last one year, several of the equity funds have given phenomenal return of anywhere between 20 per cent and 30 per cent. Further, over the past 3-5 years, the annualised returns in major equity fund categories have stood 10-30 per cent.
"I would not be worried about the high redemptions in recent past. Investors come to mutual funds with a goal and anyone who had been investing for the last 3-5 years have been sitting on good profits. They are happy investors as they are booking profits. Else, traditionally we have seen retail investors redeeming when markets strike lowest levels and thus they book losses," says G Pradeepkumar, chief executive officer (CEO) of Union Mutual Fund.
According to fund managers, it is a good sign that investors are making wealth and are taking money out to meet their requirements. Such investors tend to come back to mutual funds as they are the best wealth creating vehicles.
Pradeepkumar added that churning of funds could also be one of the reasons from equity to other funds.
With share indices trading at record levels, there is an increasing trend among investors to opt for balanced funds. In particular, funds with dynamic allocation feature are being preferred the most. Further, there will be several investments which have been completing their tenure of 3-5 years. This set of money too would be going out.
Continuous high investment through systematic investment plan (SIP) route has been a bonanza for the sector. Over the last one year, the monthly SIP flow has increased from Rs 3,100 crore to over Rs 4,500 crore. Moreover, in equity schemes alone, the net inflows during April-May have been quite robust at over Rs 20,000 crore.