Investors continue to prefer mutual funds to direct equities

Individual investors have sold direct equities worth Rs 15,000 crore, invested Rs 28,000 crore in MFs this year

Individual investors have continued to put their trust in fund manager-led equity schemes rather than follow the direct equity route in the recent stock market rout that started in January this year.

Individual clients, which includes retail, high net worth individuals (HNIs) and NRIs, are net sellers of equities, exchange data show.

According to data from the exchanges, so far in 2015, retail investors have sold equities worth Rs 14,869 crore. On the other hand, equity mutual fund schemes have seen net-inflows of Rs 28,505 crore.

“The kind of volatility that you see in the market has made investors wary. They now realise they need some kind of expertise to invest in equities and so choose the fund manager-led equity schemes, rather than the direct equity route,” said Dinesh Khara, CEO & MD of SBI Mutual Fund.

The trend becomes even clearer if one looks at the last 12 months. Individual clients were net-sellers by Rs 41,225 crore in the last one year. The mutual fund industry has seen inflows worth Rs 78,527 crore till April.

Market experts said that in the aftermath of the 2007-08 downturn, investors had become cautious and had preferred to stay away from direct equities. Those who had stayed in direct equities in the hope of booking profits were dismayed by the sudden plunge that recently impacted markets.

Besides, the changing demography of investors has also brought about a change in the pattern of investment and the choice of investment products.

“In the last 10 years, a boom in the private sector has brought in a lot of educated youth into the working-age category. These young professionals are not fascinated by gold and real estate, like the older generation, and believe in creating paper wealth,” said S Krishna Kumar, head of equity, Sundaram Mutual.

Such professionals rely more on the services of fund managers and wealth advisors to avoid the rigmarole of direct equity investments.

But some fear that mutual funds may also start losing favour among retail investors if persistent underperformance of the equities market continues. Most market researchers and experts believe that if the pain in the market continues it could see a drop in incremental flows received by MFs and insurance companies.

“Incremental flows into MFs and insurance companies may slow over a period if the markets keep on falling. Once people see the NAVs going into the red, individuals are not going to put in new funds into those schemes,” said a senior official from a domestic securities firm.

But others believe that the recent near 10 per cent decline in markets will bring in investors who missed the equity rally bus earlier.