September fund flow data released by the industry body, the Association of Mutual Funds in India (Amfi), show that the mutual fund (MF) industry lost at least Rs 54,000 crore of assets in the month. Most of the outflow was on account of liquid and money market funds. Even then equity or growth assets haven’t added anything significant, showing that investors are most likely sitting on the sidelines waiting for the volatility to tide over.
Year-to-date (YTD), overall equity assets (including balanced funds and equity-linked saving schemes, or ELSS) for the industry have declined nearly 7% to Rs 1.89 trillion. The reality is that the MF industry is losing assets so far this year, with total assets declining 7.1% to Rs 6.42 trillion crore since January.
In September, other than equity, the only group to attract net inflows was gold exchange-traded funds (ETFs), which garnered the highest-ever monthly inflows.
Liquid and fixed income funds
Liquid and money market funds and fixed income funds recorded net outflows mainly on account of the quarter end as institutional money was pulled out.
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What’s not visible in the data is the increased interest from individuals, both retail investors and high networth investors (HNIs), in fixed-income funds such as short-term income funds.
Says Mahendra Jajaoo, executive director and chief investment officer (fixed income), Pramerica Asset Managers Pvt. Ltd, “Retail participation (in fixed income schemes) is improving. People are realizing that fixed deposits are not attractive on a net of tax basis.” The 2011 Asia Pacific Wealth Report launched by Merrill Lynch and Capgemini on Thursday talks about fixed income allocation by HNIs increasing from 26% in 2010 to an estimated 29% in 2012 compared with a 1% decline in equity allocation over the same period.
Money collected in new fund launches for fixed income was more than the last six months’ average. However, bulk of the money comes from existing schemes which only collected around Rs 52,000 crore, the second lowest collection this year. This is more a seasonal phenomena and net flows in October for liquid funds should look better given the start of a new quarter for businesses.
On a gross basis existing equity schemes collected only Rs 4,902 crore in September, which is far lower than the collection of Rs 6,229 in August and even lower than the average collections so far this year. New launches in equity schemes have more or less dried up with only Rs 602 crore collected this year.
For existing schemes, investors were eager buyers in August when the markets had started to come off. Post that, as the market volatility increased, investor interest has somewhat declined. Says Kalpen Parikh, deputy chief executive officer, IDFC Asset Management Co. Pvt. Ltd, “August was a good month for equity flows as investors used the correction to add positions; inflows slowed down in September with slower market activity.”
Fund flow data show that most retail investors are sitting on the sidelines on equity investments, waiting for the news flow to turn positive. Says Pawan Joseph, vice-president, Motilal Oswal Wealth Management Ltd, “Right now flows are driven by client sentiment which is at a low. We have also seen a drop in equity volumes, but are advising clients to stay put, because investing is not about getting the best price rather about how long you can hold on.”
While common sense dictates that it is more profitable to buy when prices are low rather than waiting for them to move up, the surge in market volatility and continuing negative news flow is guiding investor sentiment and keeping gross sales of the asset class at a low for now.