More MF investors head for exit door

Another 100,000 equity investors withdraw in January, SIPs see steep fall in inflow

Bear markets or bull markets, it’s an unchanged down story for the Indian mutual fund industry on equity investors’ base. The steep rally in the stock markets since January 1 has only intensified exodus of retail investors from MFs.

According to the Securities and Exchange Board of India (Sebi), close to 100,000 folios were closed in January alone. This brings the total number of folio closure in the current financial year, to around 900,000. Not only pure equity schemes, but equity-linked saving schemes have also seen cancellation or termination of clients’ investments.

In 2011, when Indian equities were among the worst performing of markets, folios were consistently being closed.

Jaideep Bhattacharya, chief marketing officer of UTI MF, says, “Equity folios are being closed mainly on account of profit booking by investors and better alternate assets and avenues offering assured returns of as high as 10 per cent. There is an emerging trend of investors shifting to debt.”

In January, stock markets' benchmark indices gained a little over 11 per cent. That seems to have accelerated the withdrawal. According to Bhattacharya, investors are moving out from older schemes, largely thematic funds.

“For instance, infrastructure schemes and other sectoral funds which did not do a favour to investors saw profit bookings in the current rally,” adds Bhattacharya.

Agrees Ajit Menon, executive vice president at DSP BlackRock MF, “There is more of redemption than fresh purchases. Closure of Systematic Investment Plans (SIPs) has picked up during December-January, as markets rallied sharply. Thematic funds, even with three years of SIP, could not perform. New registration of SIPs is far less than closure of SIPs.”

During the middle of the last decade (2005-07), infrastructure was one of the favourite themes of fund houses. However, performance-wise, they remained at the bottom till December last year.

This year, even infra-based funds performed and offered returns of a little over 12 per cent, only to see more profit bookings.

Amid this, another factor worrying the industry is stoppage of investments through SIP. “Internal statistics show the industry had around 120,000 SIPs which did not see transactions. Either the cheques are being bounced back or transactions through the electronic clearing service are not being honoured,” explains the chief marketing officer of another large fund house.

He says though these investors were not redeeming, the folios continue to exist. “But if transactions fail to happen consecutively for the third time, they are taken as closed folios,” he adds. This means retail investors are wary of the steep stock market rally and are staying away from the system, add fund managers.