Equity mutual funds see big churn

Gross redemption this year at Rs 72k crore; net inflow at Rs 40,000 crore

While equity mutual funds (MFs) have seen robust net inflow of nearly Rs 40,000 crore in the first five months of 2017, a closer look at the data shows the absolute redemption figure is also quite high, at Rs 72,708 crore. In other words, investors have taken out nearly Rs 14,500 crore from equity schemes every month.

Sector players say this is partly due to savvy investors taking money off the table as stock prices climb to record highs. They say a lot of money is being churned, with investors pulling out from one scheme to invest in some other more lucrative one.

The total sale of equity MF units this year has been Rs 1.12 lakh crore (gross sale minus redemption is net inflow).

“There would be investors who are booking profits and at the same time one can’t deny the fact about realignment of portfolios — shifting from one fund to other. Investors who have invested for more than three years are sitting on reasonable profits; so, it’s normal for them to take some money off the table,” says Kaustubh Belapurkar, director (fund research) at Morningstar India.

Over the past year, several equity funds have given a return between 20 per cent and 30 per cent. Further, over the past three to five years, the annualised return in major equity fund categories have been at 10-30 per cent.

“I would not be worried with the high redemptions in the recent past. Investors come to MFs with a goal and anyone who had been investing for the past three to fived years have been sitting on good gains. They can happily book profits. Else, traditionally, we have seen retail (individual) investors redeeming when markets head lower and hence make losses,” says G Pradeepkumar, chief executive at Union MF.

Fund managers say it is a good sign that investors are making wealth and taking money out to meet their requirements. Such investors tend to come back to MFs, as the best wealth creating vehicle.

Pradeepkumar added that churning of funds could also be one of the reasons, from equity to other funds. With share indices trading at record levels, there is an increasing trend among investors to opt for balanced funds. In particular, funds with a dynamic allocation feature are being preferred. Further, there will be several closed-end schemes which are completing their tenures and as a result, the money is flowing out, say experts.

Continuously high flow through the systematic investment plan (SIP) route has been a boost for the sector. Over the past one year, the monthly SIP flow increased from Rs 3,100 crore to a little over Rs 4,500 crore. In equity schemes alone, the net inflow during April-May, first two months of this financial year) was been quite robust at over Rs 20,000 crore.