Mutual funds equity folio closures in India came close to the 4-lakh mark in November, a month when the benchmark indices retreated about 1.7%.
According to the latest data available with market regulator Sebi, folio closures numbered 3.82 lakh in November, taking the total number of folio closures in FY14 to 29.3 lakh. The same period last year saw 30.6 lakh folio closures, signifying that the pace of folio closures continues unabated despite the efforts of MF industry to educate investors about staying invested for the long-term.
The numbers for the month of November are slightly better than in October when 5.47 lakh equity folios were extinguished, making it the second-highest monthly closure of folios in calendar year 2013. The benchmark BSE Sensex had risen 9.2% in October, with the benchmark BSE Sensex making new highs. September had also seen folio closures in excess of 5 lakh.
Folio closures are worrying as equity assets are a lot stickier than debt assets and can generate higher revenues for the 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 numbering more than 5 lakh in September put paid to these hopes.
However, net inflows of R927 crore in November as well as the sustained market upmove since October has given the industry renewed hope. “Investors are getting more confident about the economy and the market in general and I expect the trend of folio closures to decline in the coming months,” said Akshay Gupta, CEO, Peerless MF. “The extreme negativity is slowly abating with the Sensex moving from the 15,000-18,000 range to the 18,000-21,000 range post October.”
At the end of November, equity folios accounted for about 74.8% of the industry’s total of 4.04 crore investor folios. Assets under management (AUM) of equity schemes stood at R1.51 lakh crore, comprising 17% of industry's overall AUM of R8.89 lakh crore.
Equity folio closures have been a regular feature every single year since FY10. The financial