The Indian mutual fund (MF) industry lost 1.5 million equity folios in the first half of 2012. The shrinking of the industry’s investor base is continuing unabated, despite the fund market reaching completion of three years of entry load ban on equity schemes.
According to statistics available from the Securities and Exchange Board of India (Sebi), the number of equity folios stood at 36.9 million against 38.4 million in December last year. Moreover, in June, the decline continued as the sector lost another 234,000 equity folios amid persistent volatile equity markets.
During the month, investors withdrew equity investments worth Rs 286 crore. “Flows in the equity segment has dried up, which is a big concern,” says the chief marketing officer of a fund house, who did not wish to be named.
Industry executives say that as long as interest rates remain high on debt and fixed income products and uncertainty in equity markets continues, it’s hard to attract funds into equities.
Though distributors’ disinterest is partly to blame for the low inflows, the overall bad economic scenario is a bigger deterrent for investors to enter equities at the current stage, they say. In August 2009, Sebi had abolished entry load (2.25 per cent) on sales of equity schemes.
Fund houses added the most number of equity folios during the pre-crisis years. However, in the past three years, since March 2009, the sector saw a massive decline of 4.2 million folios in its investor base, which accounts for over 10 per cent.
These losses are happening at a time when acquisition of retail clients has become expensive. As on June 30, the average assets under management of the industry stood at Rs 6.92 lakh crore.