Equity folios plunge in April

Fresh investor money coming in but less of it going into equity category.

The Indian mutual fund sector lost a little over 400,000 equity folios in April, one of the sharpest such declines in a single month.

After successfully applying brakes on the pace of loss of equity folios in the second half of the previous financial year, the MF industry is again in trouble on the growing of the equity base.

The equity folio loss in April was a little less than one-fourth of what the industry lost in all of 2010-11. In FY11, the fund industry saw an erosion of 1.8 million equity folios. About Rs 1,400 crore went out of MF equity schemes.

The Securities and Exchange Board of India (Sebi) says the number of equity folios (including equity-linked saving schemes or ELSS) stood at 38.88 million as on April 30, against 39.29 million at the end of the previous month.

STEEP FALL
Category-wise change in folios
Category Number in April Change*
Equity 3,05,60,596 - 2,78,240
ELSS 83,277,13 - 1,23,740
ETFs 4,33,356 10,555
Income 47,19,763 + 1,92,328
Industry’s overall folios 4,70,18,486 - 2,14,776
*with respect to March figures Source: Securities and Exchange Board of India

The hit on the pure equity category was severe, as it declined by 2,78,000; ELSS folios shrank by 1,23,000.

WORRIES
Karan Datta, national sales head at Axis Mutual Fund, says, “The situation is not good. It is increasingly getting difficult to attract customers in the equity segment. However, it is not that fresh flow is not coming to the industry. The majority of the fresh money is getting diverted to gold and income funds, particularly the fixed maturity plans.”

More, with underperforming Indian equity markets, fund managers have raised concern over how the scenario would turn around in the coming months.

According to Navneet Munot, chief investment officer at SBI Mutual Fund, “Going forward, it would be a challenge to maintain flows in the equity segment, given the current volatility.” Vetri Subramaniam, equity head at Religare Mutual Fund, agrees. He says, “It is likely that inflows will be under pressure in a volatile market.”

This loss of folios is also in the background of the shallow penetration of mutual fund products among the country’s population — less than five per cent. Poor penetration and a majority of investment coming from only the top 10 cities has been an issue for the industry. Though investor awareness programmes and expansion in terms of reach to tier-I & II cities are on, it has not yet reflected in the industry’s assets and number of investors.

The new regime at Sebi under U K Sinha is already contemplating changes to bring relief for the industry. Sector experts say unless distributors are incentivised properly, it would remain an uphill task to increase penetration of MF products.

The overall industry’s folios also shrank in April by close to 200,000 folios as compared with 47.23 million as on March 31.

Income schemes saw the top growth in folio addition, as it increased 4.2 per cent to 4.71 million in April from 4.52 million at the end of March.

Exchange traded funds continued their momentum and the month saw a rise of 2.5 per cent in their folios, while the investor base of gold exchange traded funds was up three per cent during the month.