One million equity folios close during Jan-April

Account closures at 3-month high in April; equity sales dip 30 per cent

Despite a recent bull run in the stock markets, retail investors accessing equities through mutual funds chose to close their accounts and exit investments.

In the first month of the current financial year, the fund industry witnessed  264,000 equity folio closures, the largest in the last three months. Industry officials attributed this to profit booking by investors as the Sensex inched closer to the 20,000-mark and the Nifty crossed the psychological level of 6,000.

With high closures in April, the sector has lost a little over a million equity accounts thus far in 2013. This is a big jolt for the sector at a time when fund managers have been advising investors to stay put.

“This has now become a trend in our industry. Whenever markets move up, closures of accounts are bound to happen, as over the last five years, our markets have not moved anywhere in absolute terms,” says an executive vice-president (EVP) of a large-sized fund house.

 

In a conversation with Business Standard, the sector’s chief executive officers (CEOs) have admitted that the risk appetite among retail investors for equities is at an all-time low.

“That’s why for almost over a year now, the debt segment is being increasingly preferred by investors, where at least they can have 7-10 per cent decent returns,” explains the managing director of one of the top five asset management companies (AMCs).

 

The fag-end month of FY13 had brought some cheer to equity fund managers, as the segment witnessed the first positive traction of over Rs 750 crore in several months, amid rising sales. But at the time, they were quick to add that it was too early to say whether the trend would sustain.

The fear turned out to be true in April as overall sales in the equity segment dipped back to the abysmal level of around Rs 3,000-3,100 crore against the last four months’ average sales of over Rs 4,500 crore.

“I feel that stock markets should not go up if we need to retain investors, which sounds quite odd,” adds the EVP cited above.

Currently, the mutual fund sector offers 348 equity-related products of which 299 are pure diversified equity schemes and the remaining equity-linked saving schemes. As on April 30, the assets under management (AUM) of the equity category stands at Rs 1.78 lakh crore, which is 21.6 per cent of the sector’s overall AUM of Rs 8.25 lakh crore.