Equity MFs are back, sales cross last year's level

Amid continuous outflow from the equity segment of the domestic mutual fund (MF) industry, the current financial year has brought some positive news for the fund market.

The sales of pure-equity MF schemes so far this year have surpassed what was seen in the same period last year, indicating the flow of fresh money has not dried up.

According to the Association of Mutual Funds in India, sales during April-October rose 4.53 per cent to Rs 35,760 crore, compared to Rs 34,210 crore in the corresponding period of the previous year. This is the highest during the period since 2008.

If equity-linked saving schemes are taken into account, the sales are further higher at Rs 36,981 crore, against Rs 35,320 crore, up 4.7 per cent. Interestingly, this is despite the fact that the fund industry suffered a setback after the market regulator, the Securities and Exchange Board of India, banned entry load on equity schemes in August 2009. The move made selling equity funds tougher.

A chief executive at one of the top five fund houses said, “Fresh money, no doubt, is flowing into the system, mainly through systematic investment plans, of which registrations are going up. But since redemptions are on the higher side, this is not getting reflected in the industry’s equity assets.”

According to Sunil Subramaniam, executive director (sales & marketing), Sundaram Mutual Fund, “Redemptions are from those who invested in the earlier peak, after which the market crashed.” Industry experts said with rising markets, investors were slowly coming to the fund industry.
 

RECOVERY SIGN Sales of equity MFs  (Rs  crore)
Year	Apr-Oct	Total
2007-08	58,312	119,838
2008-09	22,034	29,480
2009-10	34,210	61,114
2010-11	35,760	—
Source: Amfi

However, industry players said a rise in gross sales should not bring complacency, as compared to the earlier peaks, current sales were minuscule. For instance, in 2007-08, when domestic benchmark market indices were on their way to all-time highs, MF equity sales were close to Rs 120,000 crore.

“In comparison to that figure, the current sales are barely one-third,” said Karan Datta, national sales head at Axis Mutual Fund.

Fund players said despite the fact that this year’s markets were at almost the same level as in 2008, the sales of equity MFs could not keep up pace. In April-October of 2007-08, the sales were at Rs 58,312 crore.

“During that time, new fund offers (NFOs) helped the industry garner a much greater sum. However, in today’s situation, NFOs are no more in fashion as they are incapable of raising funds,” said the chief investment officer at another top fund house.

In fact, in 2007-08, the industry came up with a whopping 55 NFOs, which garnered Rs 43,028 crore. This year, the number dipped to 16, which could manage to collect a mere Rs 2,738 crore.