Net inflow in existing equity funds touch six-month low in Dec

A story I wrote earlier this week (in the media company I write for currently) on inflows in domestic MFs"

Net inflow in existing equity funds touch six-month low in Dec

    Existing open-ended equity funds saw net inflow slow down to a six-month low in December, as investors were guarded with many turning to investing in hybrid funds and alternative investment funds instead.

    Last month saw net inflow of 106.2 bln rupees flow into existing equity funds, sharply lower than the previous month's level of 173.7 bln rupees and the lowest in six months, data from Association of Mutual Funds in India showed.

    The analysis excluded close-ended funds and subscriptions garnered by new fund offers.

    The fall of net inflow of open-ended equity funds to a six-month low in December was primarily on account of a spurt in redemptions during the month to 220.6 bln rupees which was the highest monthly redemption level in more than a year.

    Redemptions have risen in the past two months. In the Nov-Dec period, total redemptions stood at 392.9 bln rupees, significantly higher than 256.9 bln rupees seen in the previous two months of September and October.

HIGH NETWORTH INVESTORS

    High networth investors are booking profits in some of their current holdings in equity schemes of mutual funds and re-deploying the funds with alternative investment funds and portfolio management schemes, according to Kavitha Menon, a Mumbai-based investment advisor.

    According to Rishi Kohli, Managing Director at Pro Alpha Systematic Capital, lot of high networth investors and family offices with liquidity but scared of current high levels of equity markets were pouring in money into alternative investment funds that promise steady returns with negligible risk and 8-12% range of post tax returns which some of them are offering.

    This is reflected in the declining on-month growth rates in assets held by corporate investors and high networth investors in equity funds, excluding tax-saving funds.

    Assets held by corporate investors, which include family offices, in equity funds last month grew marginally by 0.1% on month to 1.11 trln rupees. In November, the same had seen an on-month assets growth of 4.2%.

    High networth investors' assets in equity funds rose 5.3% on month to 2.43 trln rupees in December, compared to a higher on-month growth of 5.9% in the previous month.

    Alternative investment funds are regulated by Securities and Exchange Board of India. They are separate from mutual funds as they raise funds from investors privately and have to raise at least 10 mln rupees from an investor in any new scheme.

    Further, the sponsor of an alternative investment fund is required to itself invest a minimum of 2.5% of a scheme corpus.

    As per last available data from Securities and Exchange Board of India, alternative investment funds had raised funds to the tune of 137 bln rupees in the Jul-Sep quarter, which was close to double the 72 bln rupees amount raised in the previous quarter.

RETAIL INVESTORS

    Net inflow in existing equity funds fell to a six-month low in December also due to retail investors slowing down in their rush to invest in equity funds.

    Assets held by retail investors in equity funds, excluding tax-saving funds, grew by 4.5% on month in December to 3.07 trln rupees. In the previous month, the same had recorded an on-month growth of 5.3%.

    According to Menon, retail investors were being advised by mutual fund agents to shift from investing in equity funds to investing in equity-oriented hybrid funds.

    Fund houses and brokerage firms which act as mutual fund distributors have been aggressively marketing hybrid funds to retail investors under the premise that these funds will partially protect their capital and yet give them better returns from the equity market.

    This is also seen from the fact that last month investors ploughed in investments worth 98 bln rupees in the net (gross inflow minus gross outflow) in hybrid funds. It was the highest monthly net inflow in at least last two years.

    With equity markets touching new highs in the current month, and valuations rising still further, the equity funds will continue to find it difficult to attract large new investments from investors, big or small.

    The table below lists the last one year trend in open-ended equity fund inflows

                     Existing funds                   New fund offers

         -----------------------------------------    ---------------

         Gross inflow   Gross outflow   Net inflow     Subscription

         ------------   -------------   ----------     ------------

                             (In bln rupees)

         ----------------------------------------------------------

Dec '17      327         221             106              5

Nov '17      346         172             174             25

Oct '17      276         122             154              3

Sep '17      323         135             188              0

Aug '17      282         111             171             21

Jul '17      252         144             108              0

Jun '17      233         170              63              2

May '17      207         123              84              4

Apr '17      184         103              80              2

Mar '17      256         203              53              0

Feb '17      182         138              44              1

Jan '17      156         120              36              2