Indian retail investors, who access equities through the mutual fund (MF) route, continue to eschew investments in stock markets. The closure of 300,000 folios in one month at the beginning of the current financial year (April) has further shrunk the equity investors' base of the MF sector.
A worsening global market situation impacting Indian stocks is proving a big deterrent for investors. Between January and April 2012, 1.1 million retail equity folios have been closed. Data from the Securities and Exchange Board of India show the total number of equity folios was 3,73,47,567 on April 30, down three per cent from December last year, at 3,84,96,253.
The pace at which the equity folios are being closed is a worrying signal for the industry. In FY12 and FY11, it had lost 1.6 million and 1.8 million folios, respectively. There are more redemptions than fresh purchases.
During April, Indian benchmark share indices remained weak and volatile. For instance, the BSE Sensitive Index, or Sensex, traded between 17,000 and 17,500 and closed half a percentage point down compared with its March closing. Compared with its latest highs in February, the fall was 6.5 per cent.
Investors are allocating more money in fixed maturity plans, short-term funds and monthly income plans. "This trend may continue this year, too, but investors should not ignore equities completely," says Ajit Menon, executive vice-president at DSP BlackRock MF.
Cancellations, terminations and no renewal of existing equity schemes continue to plague the sector. Fund managers have repeatedly been advising that in bad times, investors should not stop regular investments in equities as this help them get units at lower prices. And, when markets rally, the value of these units rise substantially. The advice though, isn't registering with many.
"There is a clear shift of investor interest towards debt assets. They have a psychology of moving towards assets, which provide stickier and secure returns," says Sanjay Sachdev, chief executive officer of Tata MF. When interest rates are at higher levels, it makes sense for investors to reap benefits from debt funds, he adds.
Other fund managers agree. They say unless interest rates on bank deposits fall below eight per cent, it would be difficult to attract investors to equities in such times. No wonder, in the first four months of 2012, retail investors were net sellers of MF units worth Rs 3,733 crore.
N Seturam, chief executive officer at Daiwa MF, says, "Over the past four-five years, markets have remained stagnant and retail investors have gained nothing." In fact, investors putting in money through a systematic investment plan for over three years have not made gains out of this.
"I need to give my investors at least a return of nine to 10 per cent to counter what fixed deposits provide. It is not possible when markets are slipping on a daily basis," explains the chief investment officer of a foreign fund house.