Lump sum investments dry up for MFs

SIPs keep MFs afloat as investors redeem Rs 1.3 lakh crore in one year

During the past year, mutual fund houses have been gung-ho about the steady inflow into Systematic Investment Plans (SIPs) in equities. Many have said these have helped them counter selling pressure by foreign institutional investors.

Data from the Association of Mutual Funds in India reveals an interesting trend. Between February 2016 and January 2017, fund houses saw a net inflow of Rs 47,293 crore. However, in that period, there have been significant redemptions, of Rs 1.3 lakh crore. In all, fund houses collected Rs 1.8 lakh crore.

According to fund managers, the average collection from SIPs has been Rs 3,500-Rs 4,000 crore a month. This translates to Rs 42,000 to Rs 48,000 crore annually, almost similar to the net inflow. In other words, lump sum investors were almost negligible during the past year.

Why? "A lot of lump sum investors in the past were caught in long downturns. As a result, they had to stay invested for a long time without significant returns. Many of them now shy away from putting a big amount at one go in equities," says a senior fund manager.

Lump sum investors, it would seem, have learnt their lesson from the 2008 market crash. An investor who had invested a lump sum amount on January 10, 2008, when the Sensex hit 21,000, saw the same level being again touched only after 34 months, on November 11, 2010. This see-saw of hitting 21,000 points and falling after that continued till March 2014. In effect, for six long years, lump sum investors (betting on the benchmark index) were stuck unless willing to book losses.

Since March 2014, the market has risen and is now trading at 28,300. But, for someone who'd invested in that period, the returns would have been dismal. If we consider the current Sensex levels, the return for a lump sum investor in 2008 would only be 33 per cent - barely 3.37 compounded annual growth and less than the usual bank savings deposit rate of four per cent. Some banks give even higher savings rates.

On the other hand, SIP investors in the same period would have made money due to the volatility in the index, which allowed them to garner more units at lower levels.

Experts say the switch in investment trend would help fund houses in the long run. "The significant outflow has been due to profit booking or switching of schemes by investors. Profit booking is good news for MF houses, as it ensures the investors will come back. What is better news is the steady inflow from SIPs because it gives long-term money to fund managers," says Hemant Rustagi, chief executive, WiseInvest Advisors.