Equity account addition for funds at 17-month low

Compared to an average monthly equity folio addition of 360,000 in 2015-16, the first month of the current financial year 2016-17 has witnessed addition of just 158,000 accounts

The Rs 14-lakh-crore domestic mutual fund sector has seen a sharp drop in equity account additions in April despite strong inflows. Compared to the monthly account addition of 360,000 in 2015-16, the first month of the current financial year 2016-17 saw the addition of only 158,000 accounts. This is the lowest monthly addition since December 2014.

The fall comes amid consolidation in the benchmark indices after a 10 per cent rally in March. The fall also comes after an addition of a whopping seven million equity accounts in the past two years.

The overall equity investors' base has risen to 36 million now from 29 million in March 2014.

"Generally, April is a quiet month, as after saving taxes in March, investors take a pause. Further, there were several holidays reducing the number of working days. It is not a worrying signal as the underlying sentiment is strong and the number of investors coming to mutual funds will only rise," said D P Singh, executive director and chief marketing officer, domestic business, SBI Mutual Fund, India's fifth-largest fund house.

In March, the sector was hit hard by higher redemptions (withdrawals) which forced fund managers to liquidate their holdings to the extent of over Rs 10,000 crore. Sector officials had then said they were in a wait-and-watch mode to see whether this would lead to delayed termination or cancellation of equity accounts. Concerns that withdrawals might continue have subsided as April had strong inflows of nearly Rs 4,500 crore in the equity segment, the most in the past five months.

According to G Pradeepkumar, chief executive officer (CEO) of Union KBC Mutual Fund, "Distributors, mainly the banks, may have not been that active as April was an immediate month after FY16 closing. Meanwhile, entry of smart money through high networth individuals (HNIs) can't be ruled out."

According to industry players, equity schemes receive inflows of around Rs 3,000 crore each month by way of systematic investment plans (SIPs), which are typically recurring retail flows.

Any inflows on top of that are lump sum investments either by new investors or additional purchase by existing investors.

With a significant drop in new folio creation, it is likely that majority of the rest Rs 1,500 crore (out of Rs 4,500 crore inflows in April) may be from HNIs with larger ticket size of investment, say sector officials.