Contrary to claims by the industry, equity and equity-oriented mutual fund schemes have seen net inflows in six of the past seven months, according to data provided by the Association of Mutual Funds in India (Amfi).
Between November and May, net inflows into these funds was Rs 7,759 crore. In comparison, 27 companies raised Rs 6,369 crore through Initial Public Offerings in these months.
Amfi and a few asset management companies have been lobbying hard with the Securities and Exchange Board of India for incentivising distributors, on the plank that the industry has been seeing erosion of assets under management (AUM) and loss of investors after the June 2009 ban on charging investors an entry load. U K Sinha, chairman of Sebi, has said he will take measures for incentives to the distributors.
Equity diversified schemes took a lion’s share of these investments at Rs 4,558 crore. Balanced funds, which are hybrid funds with exposure to both equity and debt instruments, received Rs 1,515 crore. Equity linked savings schemes (ELSS), popular for their tax-saving nature, attracted Rs 964 crore, followed by Rs 722 crore received by exchange traded funds (ETFs). This group of funds recorded net inflows in all months except April. Gold ETFs, which are gaining popularity, recorded inflows of Rs 1,771 crore, netting inflows in each of the seven months analysed.
WHY THE CHANGE
Experts attribute the investor interest to the changing market conditions. Aditya Agarwal, managing director, Morning Star India Pvt Ltd, an international fund tracker, said the change is driven by two key factors.
“Markets are going down. People have started feeling it’s time to invest, as valuations are starting to look attractive.”
During most of 2010, the markets were in a positive mode, with the benchmark Sensex hitting an all-time high of 21,000 points in November 2010. However, over the next six months, it corrected by 12 per cent. Smaller stocks fell even more, making valuations attractive.
This has led to a turnaround in investor behaviour. Over the first 10 months of 2010, investors were busy booking profits. Only three of those 10 months saw net investments in equity funds. Experts say many investors had entered the market during the previous year’s lows, when the Sensex was in four digits — it had touched a low of 8,047 in March 2009.
CHANGING MARKET CONDITIONS
“Look at when the inflows happened in mutual funds. The big inflow was in 2007-2008. So, 2008-2009, when the market was low, saw the lowest redemption as people hate booking losses. Every time the market has bounced back and when it’s riding high, people get out,” said K N Vaidyanathan, executive director, Sebi, in a recent interview (his term ends today).
Even the attitude of distributors has undergone a change over the two years following the ban on entry loads. “Immediately after the ban, fund advisors dumped mutual funds in favour of other products, as it did not earn them commission. However, most advisors have realised that MFs are an integral part of any investor’s portfolio and begun to recommend funds again,” said Agarwal of Morning Star.
Total AUM under these four categories of funds, however, were lower than the October 2010 levels, as the value of these funds have taken a hit due to the falling share prices of the underlying portfolio. The corpus of these funds fell 10 per cent from Rs 2.32 trillion to Rs 2.12 trillion, a tad lower than the Sensex fall of 12 per cent in these months.