Equity investors flocked to MFs in FY16

At 11,840 new accounts a day, fastest pace since Lehman crisis, with flow high beyond top 15 cities; trend expected to continue this year

India’s mutual fund (MF) sector had a stellar performance in expanding its equity investor base in 2015-16, at the fastest such pace since the late 2008 Lehman crisis.

Though the underlying asset class, the stock markets, didn't do well (the benchmark indices fell 10 per cent over the year), there was a daily addition of 11,840 new equity folios.

Experts say retail (small) investors have grown mature over the years and get less worried when markets do not do well. Further, they say, a majority of investors feel confident about India's development story.

Sundeep Sikka, chief executive officer (CEO) of Reliance MF, adds: “The concerted effort by sectoral players on investor awareness programmes over the years has started yielding results. Investors are much more mature on market volatility. The commendable fact of last year was strong participation from smaller cities and towns in MFs. However, the sector is only scratching the surface.”

About 4.3 million new equity accounts were opened in FY16, taking the overall number to 36 mn. Though the pace of growth was exponential, this is still at a lower level against the high of 41.1 mn equity accounts at the time of the 2008 global financial crisis.

D P Singh, chief marketing officer (domestic business) at SBI MF, latest entrant among the top five, says: “Investors’ confidence level is quite high. Nearly 80 per cent of the new accounts came in the form of a Systematic Investment Plan (SIP), a good thing for the sector. I expect the trend to continue in the current financial year.”

The year saw major regulatory changes in commission payout to the distributors. Effective from April 2015, the market regulator had capped upfront commission at one per cent. The move did not go down well with distributors but higher participation of investors continued from B-15 (beyond the top 15 cities) locations.

G Pradeepkumar, chief executive of Union MF, however, is a bit cautious. According to him, “The high number of SIPs helped sustain the industry. There have been no alarming levels of cancellation of SIPs, irrespective of the market movements, a healthy sign. However, we have to wait and watch whether the trend continues or we face ‘delayed cancellation’ of SIPs in case the market does not show signs of firmness.”

And, with less payout to distributors, it is yet to be seen how things pan out, he said.

Currently, with 470 equity-oriented schemes, the sector manages Rs 3.86 lakh crore of assets.