In a heartening reversal of trend, retail investors seem to be coming back to equity investment with the retail folios of the mutual fund schemes registering an addition of 4 lakh folios in the first half of current financial year.
However, the dominance of corporates in the overall asset under management (AUM) of the mutual funds continued, probably because of their huge investment in the debt fund category, accounting for 47 per cent of the AUM of the MF industry, according to an analysis done by CRISIL Research, a division of CRISIL Limited.
For long, the Indian MF fund industry has been lamenting the lack of interest among retail investors to take advantage of the benefit of investing in mutual funds for wealth generation. The irony was that the foreign investors were rushing to invest in Indian equities sensing the potential of the Indian economy and consequently of the Indian equities to provide stellar returns. But the domestic retail investors were fleeing from Indian markets for the past few years, booking profits every time the market turned positive. Apparently this trend is set to change, possibly for good.
The CRISIL report pointed out that retail investors have come back to investing in equity mutual fund schemes after a considerable time lag. This fund category was virtually shunned by the retail investors and the equity funds’ retail folios had been continually sliding in number from the H2FY11 till H2FY14 (before the market recovery began ahead of the general elections, sensing Modi-led NDA’s victory). The equity mutual funds had witnessed a record increase of 4 lakh folios in H1FY15 to 2.90 crore folios, the report said.
What fuelled the trend was the rally equity market had witnessed, rekindling the investors’ interest in equity investment. The CNX Nifty was up by 19 per cent in the first six months of the current financial year (ending in September 2014) on expectations that the new Government would kick start the economic reforms. Surprisingly, CRISIL report pointed out that at the aggregate level there was a marginal decline in retail folios because of a fall in balanced fund folios. Retail investors, generally blamed for being fickle, also seemed to show some maturity by sticking to their investments for a longer time. The report said that of the ₹1.72 lakh crore of retail investment in equity-oriented mutual funds, ₹1.10 lakh crore remained invested for more than two years.
The HNIs (those individuals investing ₹5 lakh or more) continued to show their preference for equity investment as shown by the 15 per cent rise in aggregate folio base in H1FY15 in this investor segment. The equity fund category was the major cause for this with a rise of 46 per cent or 1.57 lakh folios to 4.95 lakh folios because of the positive bias towards equity investment, Crisil’s report said.
The increase in the equity mutual fund’s retail folios did not mean that this segment of investors was embracing equity investment at the expense of debt mutual funds in which they took refuge in the past when markets were volatile. The retail folios in debt funds which had consistently been on increase since March 2009 were up in H1FY15 too. This category brought in 2.50 lakh new retail folios over the past six months compared to the addition of 2.61 lakh folios in the previous six months. The liquid funds too continued to be favoured by retail investors and added 19,179 folios taking the total to 2.41 lakh folios in the six months ended September 2014.
But gilt funds were not so lucky with all three investor segments -retail, HNIs and institutions- continuing to keep away from gilt funds because of flat interest rates with the folio base of this category slipping 11 per cent to 50,937 accounts. Investing in gold also seem to be losing its glitter with the number of folios of gold exchange traded funds (ETFs) falling for the third consecutive half-year. Retail investors closed 21,557 folios during this period as compared to closure of 35,013 folios in the preceding six months. This trend mirrored the decline in domestic gold price that fell by 5 per cent in the first half of current FY. The balanced fund category also did not escape the retail investors’ disinterest recording a 30 per cent fall or 7.76 lakh folios – from 25.49 lakh folios in March 2014 to 17.73 lakh folios in Sept 2014- as equity returns seemed to have increased the risk appetite of investors.
Interestingly, the Crisil study points out divergent trends in investment by retail investors viz a viz HNIs during the first six months of current year in so far as period of holding was concerned. The study of AUM across investor types and categories during this period showed that 64 per cent of retail AUM remained invested in equity mutual funds for over two years which was higher than the 62 per cent seen in the previous six months in this category. Out of the ₹1.72 lakh crore of retail investments in equity-oriented mutual funds, ₹1.10 lakh crore remained invested for over two years. However only about 32 per cent of HNIs, by AUM, remained invested in equity mutual funds for more than two years, which was lesser than the 47 per cent witnessed in the preceding six months.
However, the dominance of corporates in mutual fund investments continued with 47 per cent AUM share in September 2014, which was lesser than the 49 per cent in March 2014. HNIs came next with a 28 per cent share. The share of retail segment in total mutual fund AUM edged up to 22 per cent in the April-Sept 2014 period which was marginally higher than the 21 per cent in the previous six months.