Retail investors in no hurry to invest in equities

MF equity schemes hit 6-month high net outflow in Aug despite Sebi's recent measures of higher expense ratio

No matter how hastily the government swings into action or what measures capital markets regulator takes to help fund houses; retail investors seem to be in no hurry to invest in equities. Once again it is now the same old story of high redemptions and poor sales as far as mutual fund equity schemes are concerned.

The ground reality this time is the ugliest so far in the current financial year. In August, the net outflow from equity schemes (including equity linked saving schemes or ELSS) has hit six-months high at Rs 2,286 crore according the latest industry's statistics released by the Association of Mutual Funds in India (Amfi).

This means against sales of Rs 3,400 crore, close to Rs 5,700 crore were redeemed by the retail investors who access capital markets through mutual funds. This has left industry officials continue to cry foul as they find themselves clueless how to arrest investors' exodus. Earlier, Ajit Menon, executive vice president of DSP BlackRock had told Business Standard the same that :"New money coming in is less than what's going out."

National Sales Head of a large fund house, who first declined to talk on the issue, says, "Understanding investors' sentiments is not easy. It has now become every month phenomena despite making all possible efforts to retain clients." Though he added that recent cuts in deposit rates by several banks in range of 50 bps to 100 bps may see some traction in mutual funds.

Outflows from equity MFs* so far 2012
 

Month	Net Inflow/(Outflow)
January	380
February	2,809
March	71
April	615
May	420
June	286
July	949
August	2,286

All figures in Rs crore
* Includes ELSS   Source : Association of Mutual Funds in India (Amfi)

Subdued performance of the equity markets is the main culprit, say industry executives. "This is taking toll on the performance of the schemes which is not going well with investors. During August whenever markets rallied, we witnessed requests for redemption from investors who wanted to book profitss," say chief executive officer of small-sized fund house.

India is not an exception. The same trend is being witnessed across the BRIC nations, reports Reuters. According to it, Investors fed up with years of poor returns are deserting BRIC equity funds, pushing share valuations to record cheap levels and questioning the future of the high-profile investment theme.

Deteriorating BRIC newsflow has deepened the gloom. Lack of reform has pushed India's once-roaring growth to three-year lows. China's 10-percent growth spurt is fading, Brazil's economy is stagnating and Russia remains hostage to oil prices, adds the report.

It is worth remembering that while growth, underpinned by demographics and consumption, was BRIC funds' main sales pitch, it was never a guarantee of equity profits.

As an oft-cited study from Credit Suisse/London Business School notes, the link between growth and stock-market performance is "statistically weak and often perverse". "There were a lot of opportunistic fund launches based on the false premise that you could separate the BRIC markets from others because of their supposed GDP potential and size," said John-Paul Smith, head of emerging equities at Deutsche Bank.

China makes up 40% of the MSCI BRIC index. But during two decades of double-digit gross domestic product growth, equity investors have swallowed a 10% loss.

Back in India, apart from equity related funds, other fund categories including balanced, gilt and other exchange-traded funds also saw net outflows. Liquid and money market schemes continued to pull in more fresh inflows at Rs 14,775 crore while income funds saw net inflows of Rs 7,548 crore in August.

According to Amfi, industry's overall net assets under management as on 31 August stood at Rs 7,52,548 crore against Rs 7,30,361 crore as on 31 July.