April surprises, MFs see net outflow in equity segment

The mutual fund industry has started the current financial year with a net outflow in the equity segment, contrary to experts’ anticipation of better inflows.

In April, equity schemes witnessed net outflow of Rs 1,133 crore as against Rs 196 crore in the corresponding month last year.

The equity segment has sagged since the market regulator, Securities and Exchange Board of India (Sebi), banned the entry load on equity schemes from August 1 last year. In 2009-10, the net inflow in the segment was Rs 595 crore as against Rs 1,056 crore in 2008-09.

“It is serious for the mutual fund industry. The entire distribution mechanism has taken a back foot on the back of no commissions on the equity schemes,” said the chief investment officer of a leading fund house.

According to him, thousands of distributors registered with the Association of Mutual Funds in India have not renewed their certificates for the current year. It was in July last year, a month before Sebi’s regulation on exit load came into existence, that the fund industry saw a sizeable chunk of net inflows in equity of Rs 4,432 crore, a level yet to be regained.

Agreeing the distribution network had been hit severely due to the no-commission rule, the equity head at a medium-sized fund house said, “In April, markets, too, were inching close to highs of 18,000, which again scared away investors. Those who invested at lower levels preferred redeeming and moved out. Further, issues like Goldman Sachs, followed by the Greece and Portugal crises, contributed in keeping investors away from the markets.”

The chief executive officer of another big fund house said, “Unless there is some push from the institutions, equity segment will continue to see such downtrend. With the regulator getting into micro levels, investors may not get the confidence. Moreover, the Ulip (unit-linked insurance plans) episode in April between the regulators created further problems in investors’ minds.”

Though equity remained in negative territory, overall net inflows were Rs 1,85,9 56 crore. According to Value Research, this is the highest-ever net inflow in the industry.