Redemption pressure faced by insurance companies and mutual funds has turned domestic institutional investors into heavy sellers of equity in the last two-and-a-half months.
Since September, domestic institutional investors have net sold equities to the tune of Rs 28,522 crore, according to SEBI and BSE data. In the same period, foreign institutional investors have net bought shares to the tune of Rs 35,256 crore.
Akshay Gupta, Managing Director and Chief Executive Officer of Peerless Mutual Fund, said: “Markets have been moving in a narrow range for the last four years, which has led to retail investors getting low returns on an average of 4 to 7 per cent and some big funds have even given negative returns.”
“In the last three months, with the index touching elevated levels of 21,000 points, retail investors have used the opportunity to exit and shifted to investments in fixed income instruments, which have higher returns,” Gupta said.
The BSE Sensex and the NSE’s Nifty hit life-time highs of 21,321.53 and 6,342.95, respectively.
According to Badrish Kulhalli, Fund Manager - Fixed Income, of HDFC Life insurance, typically distributors find it easier to sell based on past performance and since equity products have given lower returns there has been an overall shift to fixed income products.
Inflows into debt
Life insurance firms have seen investors, who bought ULIPs in 2007 and 2008 with a three- to four-year lock-in period, surrendering policies. Mutual funds too, have seen a major shift to debt funds.
According to industry officials, the debt assets under management (AUM) for the mutual fund industry has surged to Rs 4.4 lakh crore from Rs 3.5 lakh croreabout a year and a half ago.
Sampath Reddy, Chief Investment Officer of Bajaj Allianz Life Insurance, said: “The redemptions in ULIP funds have been high as the insurance industry, largely shifted to selling traditional funds about three years ago. The impact of this on equity outflows is now evident. With the shift to traditional products, the exposure to equity is very small, as 50 per cent of these funds are invested in government bonds.”
“The new business from ULIP products has been very low across life insurance companies and in fact it has not been able to compensate for the surrender and withdrawals of the already sold ULIP products. Hence, there have been net outflows from ULIP funds over the past two years,” said Reddy.
According to Sudhakar Shanbhag, CIO at Kotak Mahindra Old Mutual Life Insurance, within ULIPs, over the last 18-24 months, there has been relatively higher allocations to debt than equity.