One in 10 investors cashed out of equity MFs in '13

Industry lost over four million equity folios in the year

One in every 10 investors in India, who take exposure to stock markets through equity mutual funds, chose to quit in 2013.

Although the last two months of the year gone-by have brought cheer to fund managers with the equity segment seeing a collective net inflows of around Rs 2,000 crore, the sector could not stop investors from dropping out.

The sector lost over four million equity folios in 2013, translating into an average loss of 11,200 folios a day. This was not only a big setback for the industry, but it pushed back the sector by six years as overall equity investors’ base shrank to below 30 million - the first time since 2007, to a mere 29.8 million. In the previous year, the sector had lost 4.5 million equity accounts.

Further, it’s a rapid fall which can be gauged from the fact that a little over 11 million equity accounts met closures since the folio base hit its peak in March 2009 at over 41 million. It was in 2007-08 and 2008-09 that investors rushed to open their accounts as indices were flying, only to get trapped a little later when the world markets collapsed during the Lehman crisis.

Industry officials Business Standard spoke to said it’s the side effects of the newer peaks of the country’s key indices. “It was the galloping indices last year, wherein the Sensex was well above the 21,000-mark, while NSE’s Nifty surpassed 6,300 levels, which were mistakenly taken as a guiding factor by investors to exit their investments,” says the chief investment officer (CIO) of a large fund house.

Sector experts say a majority of these investors who moved out had invested at the last leg of the rally in 2007-08. After waiting for long, they chose to close their accounts once indices returned to their earlier peaks. “But it does not necessarily mean that they would have made money out of their investments. Rather, I would say they mistimed the market big time as they entered at higher valuations and exited at lower valuations,” says the CIO with another firm.

Although industry officials blame retail investors for taking ill-informed decisions, it is worth noting that it was the industry which had shown dreams to investors and kept advocating an investment strategy for three years.

However, in 2013, investors could not hold on to their patience and took back whatever they could (the principal amount with a little bit of losses or gains) as soon as indices started rising rapidly.

There was so much desperation among investors that no single month of the year saw any rise in folio numbers. The average monthly folio losses were close to 350,000.

The most shocking period for the equity segment was the month of May, which saw a record high number of folio closures at a massive 700,000 - an erosion never seen in the sector’s history. But later in August, when only 62,000 accounts were closed, sector officials were quick to say it was a trend reversal. However, what followed in the rest of the year once again brought the concerns back.

Currently, most fund managers are positive in their outlook for equities and also expect retail investors to  come back this year. However, it needs to be seen if investors would really make a strong re-entry this year, given that so many chose to close their accounts to recover their principals.