Rally costs MFs 572,000 equity folios

First half of FY13 sees over two million account closures

India’s nascent mutual fund (MF) sector lost a little over 11,000 equity folios a day in the first half of this financial year.

The pace has accelerated in recent months. The September rally in the stock markets was the latest telling blow. In just a month, when benchmark indices galloped eight per cent, funds saw closures of about 572,000 equity folios. This is the highest ever for a single month since the data became available.

With this, the equity investors’ base for MFs has shrunk by a little over two million in just six months, higher than what was witnessed in the entire previous financial year. According to statistics released by the Securities and Exchange Board of India, total equity folios were 35.56 million as on September 30.

“It’s all profit booking, nothing else. People had not seen such levels for long and had been stuck for long. At every single rally, investors took money off the table and shut their accounts,” says the chief executive officer of a mid-sized fund house. Interestingly, during the heydays of the sector in 2007-08, when indices were climbing to newer highs, fund houses added as many as 34,000 equity folios a day. Later, however, abolition of entry load on equities in August 2009 kept distributors away, leading to a sharp fall.

According to Dhruva Chatterjee, senior research analyst at Morningstar India, "This clearly shows investors have become wiser. Those who could not book profits quickly in the previous rallies and missed the opportunity, swiftly moved out this time."

During February this year, too, when the markets had rallied fast, retail investors had shown the same trend. During that period, a little over 500,000 equity folios were closed.

Last month, MF managers sold equities worth Rs 3,200 crore, while the segment saw a net outflow of Rs 3,559 crore. Currently, funds offer around 350 equity-related schemes.