Retail investors accessing equity markets through mutual funds are busy booking profits as benchmark indices near their previous peaks. In a span of a month in December, a massive 6,00,000 equity folios, including equity-linked saving schemes, stood closed - a big jolt to the Indian mutual fund industry, which has long been struggling to attract retail money.
This is an all-time high folio closure in the equity segment in a month. That too, during a period when the stock markets remained range-bound and ended the month with a mere gain of less than half-a-percentage-point. Last week, Business Standard had reported that amid heavy selling by fund managers December could see larger exodus of investors.
Srinivas Jain, chief marketing officer of SBI Asset Management Company, says, "It's purely profit booking by investors. People took advantage of the market rally and made money."Closing of equity folios has long been a trend in the fund industry. However, last month surpassed what months of February and September 2012 had seen -- closures of over half-a-million equity accounts each. On both those occasions markets had seen a significant rally.
"Erosion of six lakh folios in a month is uneasy to digest. This is a significant number and we hope retail comes back this year," adds the national sales head of a mid-sized fund house. With the latest exodus of retail investors, overall equity account closures in 2012 stands at a staggering 4.5 million, which essentially means erosion of 12,345 equity accounts per day throughout the year.
During the month, purchases in the equity segment continued to remain poor compared with redemptions. According to industry body Association of Mutual Funds in India, mutual fund equity schemes witnessed net outflows of Rs 1,718 crore in December. Equity fund managers sold shares worth Rs 2,700 crore during the month, the second highest monthly selling in the year.
Last year during the same period when the markets were trading weak and sentiments were poor, fund managers maintained high cash levels only to miss the rally which followed later. On the contrary, this time around when fund managers are avoiding taking large cash calls and trying to deploy funds in anticipation of an upswing in the markets; investors are pulling out their funds.
"Despite losing out in the initial part of 2012, they (several equity schemes) have given reasonably decent returns beating the benchmarks. If investors keep redeeming they are going to miss the opportunity of making much better returns, going forward," explains a head of equities.
Barring equity schemes, investors flocked to funds including gilt, long duration debt funds and gold exchange traded funds. As on December 31, overall investors' base of the mutual fund industry stood at 43.4 million against 47.1 million in the previous year.