Long-term investors' share in equity mutual funds on the decline

Proportion of assets held for at least a year has dropped below 50 per cent

The proportion assets held by long-term investors in equity mutual funds (MFs) has been on the decline.

Equity assets worth Rs 5.03 trillion (50.6 per cent of the total equity assets) have been held for no longer than 12 months. Also, equity assets, worth Rs 3.17 trillion (31.9 per cent of the total), are six months old, reveal the March-end data from the industry body Association of Mutual Funds in India (AMFI)

The share of equity assets held for over 24 months in the total equity asset under management (AUM) stood at 30.4 per cent at the end of March 2018. This is sharply lower than the past 10-year average of 47.2 per cent and has almost halved from 58.8 per cent in 2013. The share of long-term assets has been showing a declining trend since 2013, the AMFI data show.

Industry experts attribute this decline in the holding period to high incremental inflows, and some churn in investor money amid volatility.

The holding period for equity funds is close to that for the non-equity segment where the proportion of assets held up to a year is 59.2 per cent -- this, despite the category, including debt funds such as liquid schemes, where investors sometimes invest for as little as a couple of days.

Most corporate investors’ equity investments have not been around long. Nearly 70 per cent of existing corporate investments were made in the last one year, shows an AMFI analysis. The figure for retail investors is 38.2 per cent. This would mean most retail investments have been around longer than corporate equity allocations, even as corporate investors are increasingly allocating capital to the equity markets, currently accounting for Rs 1.88 trillion in equity assets.

Many new investors are being brought in through systematic investment plans (SIPs) to help develop a long-term investing outlook and prevent investors from rushing to exit during market turbulence, said Dhirendra Kumar, chief executive officer of Value Research (fund tracker).

“The SIP book is increasing by the month,” he said. Around Rs 71 billion came in through SIPs in March, show AMFI data.

“The proportion of SIPs has been going up, which should result in longer time spans for investors. But this is a recent phenomenon and will take some to manifest,” said Aashish Somaiyaa, chief executive officer at Motilal Oswal Asset Management Company. He pointed to recent high inflows and churning of existing industry assets as possible reasons for equity assets’ current relatively low holding-period.

A regulatory push towards improving MF access outside major urban centres by focussing on B-15 areas (regions outside the top 15 cities) may also have contributed to the entry of new investors. The lack of alternatives because of poor real estate returns, lower bank interest rates have also brought investors to mutual funds in search of returns, said Kumar.

Nearly 80 per cent of investments had been around for a year or longer 10 years ago (in March 2009). The 2008 financial crises-led fall in equity markets could have triggered the trend at the time. Most investors were said to have been waiting for a recovery in the markets before exiting. Again, the five years till March 2014 saw an average of 26.2 per cent of investor assets being around for a year or less. This figure rose to 44 per cent between March 2015 and 2018, presumably because of the influx of new investors as the markets improved.

Investors have not been exiting as markets have risen.

“There is some amount of profit-booking, but we have not seen any large-scale redemption,” said G Pradeepkumar, chief executive officer at Union Asset Management Company.