This is a kind of bottoming effect considering that sizeable folio closures have been happening for quite some time now, said Akshay Gupta, CEO, Peerless MF. Investors who are currently invested are more willing to continue with their SIPs and wait for the markets to improve. Also, now that the government is starting to get its act together, there may be a feeling among investors that the worst may be over.
Another piece of good news for the industry was the modest inflow of R467 crore seen into equity schemes in August, marking the third month of net inflows this calendar year. In July, equity schemes had seen net outflow of R1,652 crore.
At the end of August, equity folios accounted for about 76% of the industrys total of 4.15 crore investor folios. Assets under management (AUM) of equity schemes stood at R1.36 lakh crore, comprising 18% of the industry's overall AUM.
Market watchers believe that the sustained equity folio closures have been worrying as equity assets are a lot stickier than debt assets and can generate higher revenues for fund houses. Fund managers have been advising investors to continue their SIP portfolios even in tough times, but long-term investors who entered the market in 2007 and early 2008 have been particularly keen on exiting during market upmoves.
Equity folio closures have been a regular feature every single year since FY10. The financial years from FY05 to FY09 had seen net creation of folios, with FY08 seeing about 34,000 folios created per day, the most in a financial year. Unlike equities, though, about 82,000 folios were created in the debt category in August. Market observers believe some of the equity money found its way into fixed maturity plans (FMPs), which sold like hot cakes during the month. Some amount of money has moved from equity to debt FMPs because of the volatility in the equity market seen last month, said Jimmy Patel, CEO, Quantum MF.
Sales of new close-ended income funds fetched the industry R18,861 crore in August, a bulk of which was collected through FMPs. FMPs have come back in favour as short-term rates for three-month and one-year CDs rose about 200 bps to 10-11% in the two months to August.