Equity schemes: Outflows likely in Dec

This would be the second consecutive month of outflows after three consecutive months of net inflows during Aug-Oct.

“All’s well that ends well” seems to be a far cry for equity fund managers this year. In a year which saw returns from almost all equity categories in the negative territory and fresh fund flows shrinking progressively, fund managers are bracing themselves for yet another month of outflows in December.

Fund managers believe it is unlikely the industry would end the year with positive net inflows. If funds flow out, it would mark the second consecutive month of outflows after the three consecutive months of net inflows during August-October.

“Though there is no abnormal redemption pressure, the investors’ pace of withdrawing investment has slightly picked up. What is worse is that fresh sales of equity products are fast drying up,” explains the chief marketing officer of large-sized PSU bank-sponsored fund house who did not wish to be named.

November saw marginal net outflows of Rs 52 crore from equity-related schemes, including equity-linked saving schemes. “Our concern is not redemption but declining sales. It seems the industry has not learnt anything from past experiences,” says the chief executive of a mid-sized fund house.

Investors have reasons for bypassing equity schemes. As Ajit Menon, executive vice president of DSP BlackRock, puts it, “At a time when other saving schemes are offering lucrative returns, why would investors take risk by investing in equities?”

Investors’ apathy towards equity schemes can be gauged from the poor sales last month. Sales dropped close to Rs 3,300 crore in November — the lowest in 31 months. The number of equity folios shrank by around 700,000 during April-November.

According to Kaushik Dani, equity head at Peerless Mutual fund, “For the time being, we are not witnessing panic among investors. They seem to be in a wait-and-watch mode, as the markets’ movement, especially the kind of diversion in domestic and global markets, has only stoked confusion.”

So far this calendar year, benchmark indices have lost over 23 per cent of their values. As a result, barring FMCG equity schemes, no other category could manage to remain in the positive zone as far as returns are concerned. Investors made losses to the tune of 30 per cent in the last one year. The worst performers include schemes handling banking, infrastructure, mid- & small-cap, mid-cap, large-cap and large-cap & mid-cap stocks.

Compared to November, which saw a nine per cent erosion in the values of benchmark indices, this month has seen a decline of just 2.5 per cent, so far. However, the sharp volatility in the stock markets has kept investors at bay. The BSE Sensex has fluctuated steeply in December, even declining over 10 per cent from its highest closing for the month.

Fund managers admit they had anticipated the European crisis to be a matter of a few months. “However, the way uncertainty is continuing, it appears that equities’ non-performance would continue for a much longer period,” says the chief executive officer of a mid-sized fund house.