While the BSE Sensex lingered over the 20,000-mark in November 2013, equity mutual funds registered a net inflow of Rs699 crore with sales crossing the Rs5,000 crore mark, this being highest in the past 10 months

In the six months from April 2013 to September 2013, when the Sensex was below 20,000, nearly Rs10,000 crore flowed out from equity mutual funds. Monthly sales averaged Rs3,000 crore in these months. However, as the market continued its uptrend, equity sales more than doubled in the month of November to as high as Rs5,400 crore compared to Rs2,597 crore in October 2013. Last year, in an article we mentioned that majority of the investors buy when the market has already run up and is valued expensively (Read: Why people lose money in mutual funds). Seeing the current trend it seems that retail investors find it difficult to overcome this behavioural bias.

The only time equity mutual funds have registered similar high inflows are during the months January to March when investors opt for tax-saving schemes. A few months back in an email reply to Moneylife, Prashant Jain, executive director and chief investment officer at HDFC Mutual Fund said that, “Most of the retail investments in equity funds have come in high price-to-equity (PE) markets and not in low PE markets. Instead of focusing on past returns and investing when past returns are good, investors should in my opinion, do the opposite—Invest more when the past returns are less (resulting in low PEs) and vice versa.” Unfortunately, from the current trend it seems that very few retail investors follow this prudent advice.
 

According to CAMS (Computer Age Management Services) data, which account for 60% of the industry, just 54% of the redeemed values were done so with a gain for equity redemptions done during the period July 2013 to September 2013. This was much lower compared to the period January 2013 to March 2013 where 76% of investors redeemed with a gain and 66% for redemptions done in Q1FY14. This just exemplifies the fact that a significant portfolio of the investments are made at high market values.
 

When the market is rising, everyone rushes in—investors, mutual funds, advisors and so on. While investors rush in to invest, fund houses launch new fund offers (NFOs). Mutual funds seem to use to their benefit the behavioural bias of investors and launch NFOs exactly at the same time the market is moving up. In the month of November there were as many as four equity NFOs. These four NFOs contributed 16% or Rs871 crore to the total sales. This came in as a surprise, as in the seven month period from April 2013 to October 2013, just four NFOs were launched gathering total assets worth just Rs419 crore.
 

Despite the positive inflows in November, over the past 12 months equity mutual funds have registered a net outflow of Rs12,949 crore.