MF equity sales fall to 31-month low

Fund houses find attracting investments difficult due to termination of SIPs, redemption pressure.

The equity segment of the mutual fund sector is going through a bad phase. The gross sales of equity schemes hit a 31-month low in November. Fund managers say investors don’t want to take any risk due to the hazy market outlook.

According to the Association of Mutual Funds in India, gross equity sales in November were Rs 3,183 crore, the lowest since April 2009. Earlier months fetched fund houses an average sale of between Rs 4,000 crore and Rs 5,000 crore. In April 2009, they’d sold equity schemes amounting to Rs 1,836 crore. “Inflows are down and November, in particular, was the worst month,” says Srinivas Jain, chief marketing officer, SBI MF.
 

EQUITY MF SALES TAKE A PLUNGE Lowest ever since entry load ban came into effect in August 2009
Month	Gross sales	Net inflows / (outflows)
Apr	3,733	-1,076
May	5,817	1,546
Jun	4,213	20
Jul	3,676	-729
Aug	5,625	1,942
Sep	4,496	1,401
Oct	3,591	181
Nov	3,183	-49
All figures in Rs crore Source: Amfi

Marred with poor performance, redemption pressure and distributors’ unwillingness to push MF products, fund houses are finding it increasingly difficult to attract investments in equity. Even systematic investment plans (SIPs), which were a saving grace, have started showing a decline on the back of terminations and cancellations.

“There is a decline of 20 per cent month-on-month in SIP investment. Over the last couple of years, investments made through SIPs have not made returns for investors,” said Sanjay Sachdev, chief executive officer, Tata MF. “Performance is not even to the extent of what some fixed investments have offered.”

Earlier this year, top officials at Securities and Exchange Board of India had told Business Standard that fund inflows through SIPs were on the rise to as high as Rs 1,200-1,300 crore per month against Rs 800-900 crore earlier. These seem to have now entered a pause.

Agrees Akshay Gupta, CEO of Peerless MF: “The industry is witnessing terminations and cancellations of SIPs. The bigger factor which has impacted the sales is absence of a one-time purchaser of funds," says Gupta. He says investors have stopped making fresh purchases.

There is also a sharp decline in equity new fund offers. Those that dared to come in this market have failed to garner reasonable assets. “Gross equity sales have been progressively coming down,” adds Ajit Menon, executive vice president at DSP BlackRock MF.

Since August, equity funds continued to get positive net inflows but in November, the initial signals of redemption pressure were visible, with a marginal net outflow of around Rs 50 crore. Interestingly, the drastic decline in equity sales is the highest since the capital market regulator abolished the entry load on equity schemes with effect from August 2009. Despite the load ban, equity sales in some months had crossed Rs 8,000 crore. “This time, the situation is severe,” adds a fund manager. “People are not making money in such markets. Terminations of SIPs started in 2008-09 are taking a toll on the inflows.” Currently there are a little over 300 pure equity schemes available.