Equity MFs begin 2014 on a positive note

But still not out of the woods as investors' base continues to decline

The year 2014 has begun on a positive note for India's equity mutual funds when it comes to net inflows. However, it is still not out of the woods as investors' base continues to decline.

For the third month in a row, the equity segment witnessed a net inflow of money. As per the latest statistics available from the industry body Association of Mutual Funds in India (Amfi), the equity segment saw a net inflow of Rs 427 crore in January.

Inflows remained in a positive territory despite the fact that overall markets remained weak throughout the month, with fear of tapering hitting sentiments.

Prior to this, the sector had got Rs 699 crore and Rs 857 crore in the months of November and December, respectively. Though, it continues to give relief to sector officials but the positive flows are declining month by month - which is a worrisome factor for the industry.

Further, sales of equity schemes which recently reached over Rs 5,500 crore is once again down to Rs 4,558 crore - which is not encouraging.

On top of it, the sector has failed to arrest the decline in folio numbers in equity schemes. According to Securities and Exchange Board of India (Sebi), month of January saw erosion in equity investors' base.

The overall equity folios declined by 2.21 lakh during the month. Though, it is the lowest decline in past five months but it is still beyond the sector's comfort zone. In August last year, the industry could bring the folio closures to below 1 lakh mark to as low as 62,000. But in the coming months, the situation worsened further with over a million folio closures in the successive two months.

As on 31 January, mutual fund industry had an overall equity investors' base of 2.96 crore - way below what it had during 2009-10.

Penetration beyond top 15 cities continues to remain a tough task for the industry. Barring top few players, very few fund houses have been able to venture out in the hinterland of the country.

Recently, finance minister P Chidambaram also had urged fund houses to focus on other cities where there is potential. As of now, over 87% of the assets continue to come from top 15 cities, while the contribution of the rest of the cities remains pathetic.

Investors' education campaign by the industry is on top gear. As per Amfi's initiatives, fund houses are voluntarily adopting districts to spread financial literacy. However, despite all these attempts, equity schemes continue to struggle to attract investors.

Currently, assets under equity schemes make up less than one-fifth of the sector's overall assets under management. Latest statistics show that equity category (including ELSS) contributes only 1.75 lakh crore of industry's 9.03 lakh crore.

Table : Showing net inflows in equity schemes so far in FY14
Month	Inflows
Apr	-270
May	-3,357
Jun	872
Jul	-1,827
Aug	458
Sep	-2,231
Oct	-3,542
Nov	699
Dec	857
Jan	427
Including ELSS
All figures in Rs crore
Source : Amfi