Mutual fund investors press exit button

Equity schemes lose nearly 1% of folios in July.

Mutual fund investors have redeemed their equity holdings fearing wealth erosion, as global uncertainties have hit stock markets.

In July, a whopping 333,000 equity folios (including equity-linked saving schemes) were closed. This is more than double the average monthly decline in the previous financial year. The sudden and steep decline in equity investor base has shocked the industry players, for whom the trouble is only increasing.
 

FOLIO EROSION
EQUITY SCHEMES
Month	Folios
Sep-10	3,94,39,302
Dec-10	NA
Mar-11	3,92,90,2 89
Jun-11	3,88,88,309
Jul-11	3,85,54,545
ALL CATEGORIES
Category	Mar-11	Jul-11
Income	4,527,435	4,849,552
Equity	39,290,289	38,554,545
Balanced	2,777,217	2,756,954
ETFs	422,801	510,768
Fund of Funds	215,520	222,982
Total	47,233,262	46,894,801
Source : Sebi & Amfi

All efforts of fund managers and the market regulator to attract retail investors seem to have failed to put brakes on falling equity folios. The equity segment has gained importance because, as fund managers say, 99 per cent of flow of funds is from retail investors.

With the steep fall in equity investor base, the industry has seen 735,000 equity folios closed so far in the current financial year. This puts the average monthly decline during the April-July period at 184,000 a month, which is significantly higher than the average monthly decline of 150,000 folios in the previous financial year. In 2010-11, industry had lost 1.8 million retail folios in equity schemes.

Industry officials Business Standard spoke to felt uneasy commenting on the situation. Srinivas Jain, chief marketing officer at SBI Mutual Fund, said: “Such a decline is a clear indication that investors are moving out.”

In several cases, industry experts say, investors are making sure that there capital is protected and does not depreciate in an uncertain scenario with high volatile market movements. "It's hard to say whether these investors have booked profits or moved out of fear of any further capital erosion," they say.

Dhurva Raj Chatterji, senior research analyst at Morningstar India, says: "There had been a net outflow of funds from equity schemes last month. Barring May, inflows in the equity segment were marginal this year. Loss of folios could be a knee-jerk reaction in a risk-averse situation."

In July, equity schemes saw a net outflow of Rs 869 crore. This pulled inflows down in the negative territory for the April-July period.

Till last week, investors were already sitting on negative returns of 8-25 per cent in the most-favoured mutual fund equity schemes. These schemes included HDFC Top 200, Reliance Growth, HDFC Equity, Franklin India Bluechip and ICICI Prudential Dynamic, among others.