MFs miss rally on redemptions

Equity schemes have seen withdrawals of '7,613 crore so far this year.

The domestic mutual fund (MF) industry has failed to participate in the recent market rally, courtesy the rise in redemptions at every higher level.

Despite the fact that the current calender year has seen the Sensex rise from 17,000 to 20,000 levels, fund houses have emerged net sellers during this period. As against $11.2 billion (Rs 50,760 crore) net inflows from foreign institutional investors, fund houses had to sell assets worth $2.5 billion (Rs 11,300 crore) in this rising market.

At present, there are 404 equity schemes in the domestic fund market. Of these, 173 have surpassed their all-time highs of 2008. So far in the current financial year, equity MF schemes have lost Rs 7,613 crore, as against a net inflow of Rs 7,290 crore during the corresponding period last year.

Fund managers Business Standard spoke to said this was mainly due to continuous and rising redemptions at a time the net asset values (NAVs) of equity schemes were at lifetime highs. They denied the selling was due to profit-booking by the industry.

In August, the fund market saw a net outflow of over Rs 3,000 crore from equity schemes. Nimesh Shah, managing director & CEO of ICICI Prudential MF, said, “The selling is solely because of the redemption pressure. We believe September will be in line with the last month in terms of net outflows from equity schemes. There is some profit-booking, but it is not a major contributor.”
 

RUNNING FROM THE RISE FLOWS FROM FIIS AND MUTUAL FUNDS
Sensex	FIIs	MFs
17-18k	5,706	-1,274
18-19k	3,653	-729
19-20k	1,913	-532
All figures in million $
* With net FII flows of $11.2 billion, the market moved from 17,000 to 20,000
* MFs have been net sellers worth $2.5 billion, largely on account of redemptions
Source: Credit Suisse

Agreeing with him, the chief executive officer of another top fund house said, “Investors continue to pull out money as valuations have gone up. This has prompted us to go for profit-booking as we have set targets to come off the markets. However, we cannot keep this cash for long and need to reinvest in sectors that are still undervalued.”

Experts said the current cash holding of the industry was in the range of five to eight per cent.

Akshay Gupta, CEO of Peerless Mutual Fund, agreed the industry was facing redemptions at every higher level. “Investors do not want to take risks any more. Many of them had got stuck at previous highs and at a time NAVs are at all-time highs, they are taking a call on cutting positions and getting off.”