Equity MFs bounce back after elections

After 4 yrs of steady decline, fund houses add 1,500 equity folios a day since mid-May

The investors' base of equity mutual funds (MFs) are on the rise as stock indices scale new highs. On an average 1,500 new equity accounts are being opened on a daily basis since the Narendra Modi-led government took charge in office this May.

This is a big relief for the MF sector. It had seen an exodus of investors from its equity category over recent years, losing upwards of 11 million equity folios in since March 2010. There were periods when account closures had reached 700,000 on a monthly basis.

That tide seems to be turning. In the first two months of the Modi takeover, June and July, the MF sector added 93,415 folios in its equity category. This is a remarkable improvement.

Sector executives say it is mainly because investors have been underweight in equities over the past few years. And, this is happening at a time when other asset classes such as real estate and gold have hardly delivered returns in the past two years.

Kalpen Parekh, chief executive officer of IDFC MF, says, “Among investors, the appetite for risk taking has improved significantly on hopes of a growth revival and a focus on execution by the new government. They are more hopeful than earlier and this is reflected in their choice of investment, as the number of transactions has increased two-fold, favouring equities. It's a turning point and the trend should continue.”

Equity schemes are currently seeing one of the largest gross sales and net inflows. The gross sales have reached a massive Rs 40,000 crore during the period; inflows (net of redemptions) touched Rs 20,000 crore. Such a gush of liquidity from domestic investors was earlier seen during 2007-08, when Indian indices were heading for their peaks before the crash.

According to Ajit Menon, executive vice-president of DSP BlackRock Mutual Fund, “Retail money has started coming in, evident from an increase in the number of systematic investment plans (SIPs).”

S Naren, chief investment officer of India's second largest asset management company, ICICI Prudential MF, says: “We have noticed fresh investors entering the market through our closed-ended new fund offers. Domestic money is likely to show huge confidence in equities and over a three-year view, significant money could come in from the domestic side.”

As on end-July, the total number of investors’ folios in equity schemes (including equity-linked saving schemes or ELSS) stood at 29.31 million; in May, there were 29.21 million. In March 2009, equity folios’ total were at a peak, at 41.13 million.

Currently, the Rs 10 lakh crore MF sector offers about 380 equity schemes (diversified and ELSS) to investors. Of the total assets under management, 25 per cent or Rs 2.51 lakh are in equity schemes.