Redemptions in equity MFs hit 16-month high

With subdued fresh sales of equity schemes, February net outflows inch up to around Rs 2,700 crore

Retail investors accessing equities through mutual funds (MFs) continued to book profits amid steep volatility witnessed in February. The redemption amount hit a 16-month high, while net outflows, were the highest since October 2010.

According to the statistics released by industry body Association of Mutual Funds in India (Amfi), overall redemption from pure equity schemes stood close to Rs 6,300 crore in February. With consistent subdued fresh sales of equity funds, the net outflow increased to Rs 2,700 crore against Rs 456 crore in the previous month.

“This is in line with expectations,” says Akshay Gupta, chief executive officer of Peerless Mutual Fund. “Especially when equities are not stoking confidence among investors, who are preferring availability of alternative investment avenues including fixed deposit and tax-free bonds.”

After a steep rally in January, sharp volatility hit the markets in February. During that month, benchmark stock indices ran up eight per cent, only to see a correction of over four per cent in a matter of a few sessions. “Investors are using these intermittent rallies to exit,” explains Gupta.

A WORRYING RISE
Category of Funds	Net Inflow/  (Outflow)
Income	-2,527
Equity	-2,680
Balanced	-243
Liquid/Money Market	6,860
Gilt	-88
ELSS	-129
Gold ETFs	85
Other ETFs	-40
Fund of Funds Investing Overseas	33
All figures in Rs crore                                         Source : Amfi

The chief investment officer (CIO) of a foreign fund house agrees, noting that extremely high volatility is taking toll on investors’ sentiments. “Indian retail investors prefer to stay away when markets correct. When the rally comes, they wait for corrections,” he notes.

“This makes me wonder: when would retail investors come in?”

Industry officials to whom Business Standard spoke say there was no reason for the market to rally so steeply in January. “Had this rally happened during a course of three to four months, lost investor confidence could have stood restored,” explains the CIO. “But, sharp movements tend to keep investors away which is hitting MF equity schemes.”

With such a sharp outflow in February, the overall inflows in the equity segment has barely managed to remain in the positive territory so far in the current financial year at less than Rs 500 crore. During the same period (April-February) last year, the industry had witnessed a net outflow of a whopping over Rs 13,000 crore — the highest for the fund industry.

However, concerns continue to remain among fund managers about the current month. They say, there is no enthusiasm among investors. According to them, investors have started questioning industry’s objective of long-term investment as they have not made gains over the last three to four years.

“Their point is valid,” adds an equity head of a mid-sized fund house. “That is the reason why the industry’s most sold concept of SIP (systematic investment plan) too has been hit hard over the last six to eight months. Cancellations and terminations are happening on a consistent basis.”