Equity MFs see highest redemptions in four months

Money has moved out from arbitrage and mid & small cap schemes, say sector officials

Indian investors who take exposure in stock markets through mutual funds have redeemed units of equity schemes worth Rs 7,800 crore in July, the most since March.

This has happened in a month when key indices remained highly volatile with a slight upward bias. The BSE Sensex, which traded in a wide range of 1,200 points, gained 1.2 per cent or around 330 points to close at 28,114 on July 31.



With relatively higher redemption pressure, equity fund managers, despite having robust gross sales in the equity schemes, could not pump large corpus into the stock markets. The total net investment by fund managers in shares during July plummeted to Rs 5,442 crore against Rs 10,325 crore in the previous month.

Experts aren’t reading much into the high redemptions. According to them, a lot of money is on the sideline which will find its way into stocks through mutual funds.



“There was no such event in the month that would have shifted the sentiment. Investors are not losing faith and there are no reasons for them to be worried,” said G Pradeepkumar, chief executive officer, Union KBC Mutual Fund.

In the past 18 months,  gross sales in the equity schemes have been Rs 2 lakh crore. However, the latest high figure in redemptions has alerted fund officials. Although they are still contemplating on the reasons behind it, executives assume this happened because of two reasons — outflows from arbitrage funds and profit booking by investors in mid- and small-cap schemes.

“After the crackdown on equity schemes, which offer bonus/dividend stripping, fund houses have encouraged investors to take the money out. These are not large investors and not necessarily retail. I believe this would have contributed substantially when it comes to redeeming of units,” said chief marketing officer of a large fund house.

The number of folios in the equity category has gone up to 32.85 million from 32.58 million. This means retail clients  continue to come. Equity assets under management, too, have improved from Rs 3.72 lakh crore to Rs 3.92 lakh crore. “With terribly high valuation in the mid- and small-cap space, investors are choosing to book profits from schemes which are benchmarked against these indices,” added the marketing officer quoted above.

He was, however, hopeful that such high redemption might not continue, as investors prefer large-cap schemes.

As on July 31, the mutual fund sector with 40 players attained an asset size of Rs 13 lakh crore - first time in its history.