Advisors push systematic withdrawal plans to curb outflows from MFs

Investors continue to pull out funds with markets making new highs, say industry players

The sharp surge in outflows has led to concerns among mutual fund (MF) advisors. The latter are asking investors to consider systematic withdrawal plans (SWPs) or systematic transfer plans (STPs) when redeeming investments. According to industry sources, investor outflows have continued in December, even after flows slipped to a multi-year low last month. 

“So far, equity schemes have mopped up Rs 2,000-3,000 crore of flows, which are still significantly lower than the monthly run rate we have seen this year. However, the flows may pick up in the last week of the month,” said a chief executive of a fund house.

Just as systematic investment plans (SIPs) allow investors to pump in money in a staggered manner through SWPs, investors can pull out funds in a gradual manner. 

“An SWP can help investors take out funds in a manner that would let them benefit from further upside. Not all investors are aware of this and decide to sweep clear their large investment corpus in one go when they perceive the markets have peaked,” said Amol Joshi, founder, PlanRupee Investment Services. 

Last month, equity schemes had garnered Rs 1,300 crore of flows, which was 78 per cent lower than the previous month. This was the lowest monthly tally the industry has seen for three and a half years. 

Meanwhile, investor redemptions were up at Rs 16,268 crore, which was 47 per cent higher than the previous month. 

Industry experts say with markets still hovering around near all-time highs, investors are looking at exit routes.  

Last week, BSE benchmark Sensex had scaled fresh lifetime high of 41,809 points. Since September, the Sensex has rallied 15.4 per cent. The BSE MidCap is up 12 per cent, while BSE SmallCap is up over 5 per cent. However, both indices still remain in the red in year-to-date.

MF experts say STP also offers an alternative, which may be more efficient for investors looking to trim their equity exposure. “The STPs can be used by investors to rebalance their portfolio, according to their risk profile. For instance, if an investor’s exposure has turned into 70 per cent equity and 30 per cent debt (from 60:40), due to run-up in the markets, he can use STP to gradually transfer the excess equity exposure to a lower-risk debt fund,” said Vidya Bala, co-founder, PrimeInvestor.

Industry sources say asset management companies (AMCs) are also pushing systematic plans to exiting investors, so that large pull-outs from a fund can be staggered over time. 

“To encourage investors to opt for SWPs, MFs are waiving exit loads if investors use this route,” Srikanth Matrubai, chief executive officer of SriKavi Wealth.

“Nowadays, AMCs also allow arrangement wherein investors can use SWP to plough back gains over investments, while leaving capital intact,” added Matrubai.