MFs lose 1.6 mn equity folios

Weak market sentiment and availability of alternative investment avenues with guaranteed returns take toll observers expect no reversal soon

Indian retail investors have again given a thumbs-down to the mutual fund sector. About 1.6 million equity folios were closed in 2011-12, thanks to the volatile stock markets and deep erosion in values of benchmark indices. The year saw a continuous decline in industry’s equity investors base, worsening in the last few months. February alone saw a a massive loss of a little over half a million folios. march saw another 200,000 go.

Fund managers say there is no enthusiasm among investors, who have started questioning the objective of long-term investment in equity markets. “Their concern is valid, as they have not made gains over the last three-four years,” says the chief investment officer of a large-sized fund house.

Akshay Gupta, chief executive officer of Peerless Mutual Fund, says investors are increasingly preferring alternative investment avenues, including fixed deposits and tax-free bonds. This, he adds, is “especially so, when equities are not stoking confidence among investors”.

Earlier this year, H N Sinor, chief executive officer at the Association of Mutual Funds in India, had told Business Standard the sharp decline in folios was an area of concern. Fund officials say investors feel even the concept of a Systematic Investment Plan (SIP) as a way of investing isn’t much use. Investment in equity MFs through SIPs, once a steady route of sticky money inflows, was hit hard in 2011-12. Volatile market conditions and poor visibility of expected returns are making investors wary of putting money in SIPs.

Ajit Menon, executive vice president at DSP BlackRock MF, says, “There is more of redemption than fresh purchases. Closure of SIPs has picked up since December, as markets rallied sharply. Thematic funds, even with three years of SIP, could not perform. New registration of SIPs is far less than closure of SIPs.”

Industry officials say consistent negative returns have made SIPs an unattractive means for investing, especially when fixed-income products are offering guaranteed gains.

“There are SIPs which have been there for five years and still giving negative returns. Unless bank deposit interest rates come below eight per cent, I do not think investors would come back to equities,” says Saurabh Nanavati, CEO of Religare MF.

“Investment through SIPs has taken a hit, mainly due to market sentiments. They are not being renewed or they are cancelled. But, I believe the SIP route is a great concept of investing and investors should not discontinue it,” says A Balasubramanian, chief executive officer at Birla Sun Life MF.

During the early part of the previous calendar yea,r there was a visible increase in SIP numbers, which helped the industry apply brakes on the pace of losing equity folios. Even top officials at the Securities and Exchange Board of India had told Business Standard the amount of monthly inflows through SIPs had increased to Rs 1,200-1,300 crore from Rs 800-900 crore. But, this changed in the second half of FY12. As on March 31, the average of assets under management in equity schemes was Rs 1,82,508 crore, against Rs 1,87,149 crore last year.