Equity folio closures crossed the 5-lakh mark in October, a month when the equity market saw new all-time closing highs. This is the second consecutive month when folio closures exceeded the 5-lakh mark, reflecting the eagerness on part of investors to exit equity investments.
According to the latest data available with Sebi, folio closures numbered 5.47 lakh in October, making it the second-highest monthly closure of folios this year. The benchmark BSE Sensex rose 9.2% in October.
“Investors who were waiting for the markets to surge to cash out got the opportunity to do so in October. Equity folio closures are all the more worrying considering inflows into equity schemes have also dried up,” said Jimmy Patel, CEO, Quantum MF. October saw sizeable outflows from equity schemes of Rs 3,225 crore.
Folio closures are 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.
In August, the number of folio closures had slid below the 1-lakh mark for the first time in 19 months to 62,800, sparking hope among industry participants that the worst was over and that the quantum of folio closures were beginning to bottom out. However, folio closures of over 5 lakh in September put paid to these hopes.
At the end of October, equity folios accounted for about 75.1% of the industry’s total of 4.07 crore investor folios. Assets under management (AUM) of equity schemes stood at R1.4 lakh crore, comprising 18% of industry's overall AUM.
More than 25 lakh folios have closed in FY14 so far, a number similar to that recorded during the same period last year. For the first 10 months of the calendar year, 33.55 lakh equity folios have closed.
Equity folio closures have been a regular feature every single year since FY10. More than 1 crore equity folios have closed in the last four-and-a-half years.
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.