Bernanke charms but retail investors plot their escape

See it as last chance to exit at higher levels

With US Federal Reserve chief Ben Bernanke's surprise gift to world markets, the ghost of redemptions from equity schemes is once again knocking at the doors of India's mutual fund houses. With uncertainty still high, investors might consider the Fed's move as the last opportunity to exit at higher levels, say industry officials.

Retail investors, who access stock markets through mutual funds, have rushed in with enquiries in the past few days ever since the country's key stock indices are inching closer to historical highs. So far this month, benchmark indices have gained nearly 11 per cent.

Difficulty for fund managers is on the rise during such events as they are forced to sell shares in a rising market to service withdrawal requests. According to sector officials, it has now become a trend that whenever Sensex crosses or hovers around the psychological mark of 20,000, investors rush to redeem their money.

Though statistics for the current month is not available, if net sales by equity fund managers in stock markets are anything to go by, it is amply clear that requests for withdrawal from investors are on the rise.

As per the latest data available from the Securities and Exchange Board of India (Sebi) till September 17, equity schemes have already sold shares worth Rs 1,542 crore. This is far higher than what was seen in the last four months. In the previous month, fund houses have been net buyers of equities.

"Equities have rallied and so are the redemptions," says the chief investment officer (CIO) at one of the top five fund houses. According to him, these investors are primarily those who were stuck since 2007-08.

Agrees marketing officer of a mid-sized fund house: "Enquiries are pouring and I suspect many of these will, eventually, turn into redemptions."

Top officials have admitted in private that higher levels in stock markets turn out to be negative for the sector as far assets under management (AUM) of equities are concerned. In August, many equity schemes had reduced their cash holdings amid highly volatile markets. "Such low cash levels may not be adequate to take care the payouts, in case withdrawal requests rise astronomically," says the chief executive officer of a small fund house.

Such a situation puts fund managers in a fix. On one hand, higher cash levels do not let them reap the full benefits of a rising market and on the other, when they deploy cash fully, they fail to ride the rally as investors tend to pull out money.

So far this financial year, equity fund managers remained net sellers of equities. They sold shares worth Rs 7,135 crore. It was during the last month that they turned net buyers after 14 months. But it appears they are heading once again to the square one position.