May saw another massive exodus of retail investors from mutual fund schemes. Around 700,000 equity folios were closed, the highest ever monthly closure in the sector's history.
"These are terrible times for equity schemes," says the head of marketing at a large fund house.
Sector executives had been indicating through May that redemption requests were rising but no one had an idea that the scenario would be this bad.
This scale of decline in equity folios was previously witnessed in December 2012, when the loss was a little over 600,000, mostly retail. Barring May, this calendar year has seen a monthly loss of between 200,000 and 350,000 folios.
Chief executive officer (CEO) of Union KBC Mutual Fund, G Pradeep-kumar, says, "Part of the reason could be that these investors entered equity with huge expectations up to 2008. At the same time, the attractive returns from debt funds made investors shift." Jimmy Patel, CEO of Quantum MF, agrees that the bulk of the money moved to debt during the month.
In the past year, diversified equity schemes have given a return of 10-12 per cent, nowhere near to the kind of returns equity investments tend to provide. From a five-year perspective, annualised returns are a pathetic six to seven per cent.
In a market marked by intense volatility, retail investors lost no opportunities to hit the exit button. The month had seen net outflows of about Rs 3,300 crore from the segment.
The chief marketing officer of a fund house sounded desperate for a bull run in the market. "The only factor which can put a stop on squeezing of the retail investors' base is a sustained bull run. Otherwise, outflows will continue and the industry would have no option to arrest it."
So far this calendar year, the sector has lost 1.76 million folios, compared with a loss of 1.33 million during the same period last year. The overall number of equity accounts with the sector has further shrunk to 32.2 million, a level previously seen in 2007-08.