After continuous net outflows, equity mutual funds finally generated a net inflow of Rs872 crore in June 2013, but this has been due to lower redemptions and not better sales
Equity mutual fund schemes have seen a net outflow of over Rs31,000 crore in the past three years, according to the data released by the Association of Mutual Funds in India. The average monthly redemption from equity mutual funds has been around Rs5,200 crore over the same period. Redemptions in the month of June 2013 hit a record low of Rs2,455 crore. Even though the quantum of sales was lower than the average, equity schemes registered a net inflow of Rs872 crore for the month, the highest in 21 months. The average monthly sales of equity schemes have been around Rs4,300 over the past three years. Over the past 12 months the average monthly sales have fallen to around Rs3,600 crore despite a slew of regulatory changes to improve penetration of equity funds. There has been no effect on redemptions either, the average redemptions over the past 12 months have been around Rs5,100 crore.
The total number of equtiy mutual fund folios has declined by approximately 89 lakh from 4.11 crore as on March 2010 to 3.22 crore as on May 2013. The retail participation in equity mutual funds has also failed to pick up.
Last year, market regulator Securities and Exchange Board of India (SEBI) introduced resonable incentives for fund houses ensuring penetration beyond the top 15 cities. Even in the recent CII Mutual Fund Summit 2013, SEBI chairman, UK Sinha noted that “Only 52 branches have been opened so far. The total number of branches of the asset management industry in the country is 1600.” Looking at the lack of improvement in the industry despite introducing new reforms, Mr Sinha mentioned that, “Only 1% of the assets under management (AUM) is from the bottom 10 AMCs and this percentage has not changed substantially in the last five years. This gives an impression that we have got some non-serious players in the industry.”
Looking how people flock to Ponzi schemes, Mr Sinha mentioned that “People too are willing to experiment with new products as is evident from the huge amount of money raised by unauthorized entities. The industry will have to work hard and reach out to them.” Many retail investors have burnt their fingers in the past either by being mis-sold a product or by investing at the wrong time or in the wrong scheme. A lot of work needs to be done in educating and gaining back the confidence of retail investors.
However, for most fund houses, increasing penetration is just an asset gathering exercise. In order to have greater and more focused investor education, it was decided by the regulator last year that fund houses should set apart two basis points of the asset management fees annually for the investor education campaign. This translates to a total of around Rs150 crore, taking the current asset under management. How effectively this corpus would be used, is left to be seen.