More than 50% of equity MF investments have been around for a year or less

The proportion of long-term assets in equity mutual funds has been on the decline. 

Mutual funds’ equity assets worth Rs 5.03 trillion, or 50.61 per cent of the total equity assets, have been around for up to only 12 months. A total of Rs 3.17 trillion (31.89 per cent) is six months old or younger, shows March-end data from Association of Mutual Funds in India (AMFI), the industry body.

Corporate investors are those amongst whose investments have been around for the least time. Nearly 70 per cent of existing corporate investments were made only in the last one year, shows an analysis of AMFI data. The figure for retail investors is 38.2per cent. This would mean most retail investments have been around longer than corporate equity allocations even as corporate investors are increasingly allocating capital to the equity markets. Corporates now account for Rs 1.88 trillion in equity assets. 

Aashish Somaiyaa, chief executive officer at Motilal Oswal Asset Management Company said that it could be a combination of inflows itself being high, and churn within the industry on account of the wide variation in performance. The current growth in the proportion of equity assets within total MF assets is exceptional. So, it would be expected that a large proportion of assets are recent, but longer holding periods are likely going ahead.  

“The proportion of SIPs has been going up, which should result in longer time horizons for investors. But this is a recent phenomenon which will take some to manifest,” he said.

Dhirendra Kumar, chief executive officer of fund tracker Value Research said that there has been an influx of new investors, especially people coming in from outside of the major cities. The regulator and the industry have been pushing for improving mutual fund access outside of major urban centres, with a focus on B-15 areas (regions outside the top 15 cities). The lack of alternatives because of poor real estate returns, lower bank interest rates have also resulted in investors coming to mutual funds in search of returns, according to Kumar.

The proportion of such new investors in the market was lower in earlier years. March-end data from 10 years ago (March 2009) shows that nearly 80 per cent of investments had been around for a year or longer. This could have been because of the financial crises, which resulted in a sharp erosion of value.  Most investors were said to have been waiting for a recovery in the markets before exiting. However, the next five years also saw also saw an average of 26.16 per cent of investor assets being around for a year or lesser, right up until March 2014. The average increases to 44.04per cent between March 2015-18, presumably because of the influx of new investors as markets rose.

Since these new investors are being brought in through systematic investment plans(SIPs), it makes it unlikely that they will rush to exit during market turbulence, according to Dhirendra Kumar. 

“The SIP book is increasing by the month,” he said. 

Around Rs 71 billion came in through SIPs in March, shows AMFI data.