2014: A year of new records for India's MF industry

Assets under management up 70%, equity inflow Rs 40,000 crore during the year, with bullish outlook for 2015 and ahead; sector advice is to invest here for the long term

India’s mutual fund (MF) sector saw a reversal in fortunes in 2014. Equity assets galloped 70 per cent and inflows into equity schemes topped Rs 40,000 crore. A 30 per cent rally in the stock market saw retail investors flocking to equity offerings of fund houses in a big way, for the first time since the 2008 global financial crisis.

Net inflows in equity schemes, after initial sluggishness, started to pick up in May, coinciding with the election results. Inflows were Rs 42,800 crore until November, second highest after 2007. This had fund managers turn aggressive buyers of stock. After years of outflows, MFs turned net buyers by Rs 31,000 crore this year, the most in any calendar year. This was in contrast to the selling of around Rs 70,000 crore, due to investor redemptions, between 2009 and 2013.

The number of folios or investor accounts also saw a sharp addition after years of decline. The total touched 30 million.

“The year 2014 was a year of return of hope. Optimism was back post the landmark election results in May. The good part is those who for many years had been buying into gold and other physical assets are now interested in buying financial assets like equities,” said Milind Barve, managing director of HDFC MF, the country's largest fund house.

The assets under management (AUM) in the equity segment was up 70 per cent from Rs 1.82 lakh crore at the start of the year to Rs 3.15 lakh crore at the end of November. The market-beating rise was due to sharp gains in the stock market, coupled with robust inflow. The overall sectoral AUM touched Rs 11 lakh crore for the first time.

“The increase in equity assets is on account of incremental allocation by investors who have been underweight on this asset class over the past few years. The retail participation is on the ground of spur in economic activity and due to poorer performance of other asset classes like gold and real estate,” said S Naren, chief equity officer, ICICI Prudential MF, the second largest fund house.

Fund managers bought aggressively whenever the market entered a correction phase. With key indices already at historical highs, they feel there is more room for a rise. “We continue to believe that Indian equities remain one of the best asset classes and our advice to domestic investors is to invest in equities with a three-year and above view. With the decline in crude oil prices, India is the most attractive emerging market in the world. Therefore, any correction due to global cues is an opportunity to invest for the long term,” added Naren.

“It’s definitely a strong rally, which will continue. The economic cycle is turning and we are at the bottom. Inflation is under check, the commodities cycle has peaked and governments have been trying to revive the investment cycle for three years,” said Apoorva Shah, executive vice-president at DSP BlackRock MF.

The year also saw a slew of new fund offers in the segment. As many as 60 launches, the highest ever and mostly in the closed-end category, have managed to raise about Rs 10,000 crore in the year.

“The MF sector might see one of the best periods of its life cycle in the next five years. The sector's efforts to expand the market seem to be paying off. With the improved sentiment towards our country and the MF sector in general, I am extremely bullish on investor participation in capital markets in general and MF equity schemes in particular,” said A Balasubramanian, chief executive at Birla SunLife MF.