MF industry loses 1.7 million equity folios in 6 months

The mutual fund (MF) industry has lost close to 1.7 million equity folios, or four per cent retail equity investors, in the first half of the financial year. Reason: The equity markets are inching towards all-time highs and investors are cashing out.

The number of equity folios fell to 39.4 million in September from 41.1 million at the beginning of the year. More than a one-third of these were closed last month.

According to the Association of Mutual Funds in India (Amfi), the number of folios — including debt, balanced and exchange-traded funds—declined by over a million during the first half from 48.1 million to 47.1 million.

The number of folios indicates the number of investors in the fund market. It is a mix of high net worth investors (HNIs) and retail investors, with the latter accounting for a substantially larger portion.

Among the top five fund houses, except HDFC Mutual Fund, all others saw a dip in the number of folios. Reliance Mutual Fund was hit the hardest as it lost 226,000 folios, while ICICI Prudential Mutual Fund lost 106,000 folios. Birla lost half a lakh folios whereas UTI Mutual Fund saw a dip of 36,340. HDFC Mutual Fund added close to 300,000 folios.

“The loss is certainly a cause for concern. But it is healthy that investors are happy with their investments and are booking profits,” said Sunil Subramaniam, executive director (sales & marketing), Sundaram Mutual Fund.

In September, the equity segment saw seen a record net outflow of over '7,000 crore, much more than the expectation of industry experts. Once the balance in a folio falls to zero, it is closed. This essentially means the investor has redeemed all his investment.

R S Srinivas Jain, chief marketing officer of SBI Mutual Fund, said, “The market rally is the main reason for redemptions and closure of folios. The distributors’ apathy to selling MF products has also contributed.”

The executive vice-president of a domestic brokerage firm who is an expert on the industry said retail participation in equity schemes was not encouraging and with such a massive decline in the number of folios, it would not be easy for funds to attract retail investors, who are desperate to book profits.

Fund houses said the money withdrawn was coming back through income and debt schemes. “The money is not going anywhere. It is moving from equity to monthly income plans, which investors feel are safe,” added Subramaniam. “The markets are rising, which is why there is profit-booking. Once investors find further opportunity, they will come back to equity,” he said.

However, the debt segment outperformed other categories and saw a rise of 624,000 folios to 4.36 million from 3.73 million at the beginning of the year.