Everybody is asking: ‘how far will the market go’? Here are some positive scenarios
Equity mutual fund schemes report a net outflow of Rs1,935 crore in March 2014, after four months of consecutive net inflows, despite a near 50% growth in sales compared to that reported in March 2013
Over the past three months, from December 2013 to January 2014, equity mutual funds reported a total net inflow of Rs1,866 crore. However, a net outflow of Rs1,935 crore in March 2014 wiped out the positive inflows of the past three months. Even though sales reported in March 2014 of Rs6,675 crore is the highest since January 2011, redemptions were even higher at Rs8,610 crore, the highest since September 2010. Investors who may have invested at the market peaks in the past would have seen this as an opportune time to exit. Unfortunately for them, at the current level, the market may not be as overvalued at the earlier peaks. However, those who are jumping in now are new investors who may neither have the patience nor the knowledge to hold for the long term if the market goes sideways now.
On analysing the quarterly fund flows, equity mutual fund schemes have reported a 10% growth in sales of Rs15,163 crore for the quarter ended March 2014 as compared to Rs13,780 crore for the quarter ended March 2013. Redemption pressure continued with a 1% growth, leading to a net outflow of Rs309 crore for the March quarter.
With the market trending higher, fund houses have jumped at the opportunity and have launched new schemes. In March 2014, as many as six new fund offers were launched. Over the past three years ended October 2013, when the market was volatile and flat, just 30 NFOs were launched. Astonishingly, over the five month period, from November 2013 to March 2014, already 24 schemes have been launched; many of these are close-ended schemes.
However, despite the uptick in sales and new fund offerings, the number of equity mutual fund folios continues to decline. As on 31 March 2014, the total number of equity folios amounted to 29.18 million, down by 12% from 33.17 million as on 31 March 2013. Month on month the number of equity folios have been on a decline. While the regulator looks for ways to develop the mutual fund industry, introducing various policy changes, it fails to instil confidence in investors, the majority of whom are shunning mutual funds as an investment option.