Mutual Funds face crisis of confidence: 1 cr equity folios wiped out since March 2009

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Equity folios, as a percentage of the total number of folios in the industry, have fallen to 75.4% at the end of September 2013. Equity folios, as a percentage of the total number of folios in the industry, have fallen to 75.4% at the end of September 2013.
SummaryThe number of equity folios touched its peak of 4.11 crore on March 2009.

Nearly a crore equity folios have closed in the last four-and-a-half years, signalling a worrying trend for the mutual fund industry. The number of equity folio closures since March 2009 now stands at 99.6 lakh, Sebi data show. The actual number of investors exiting could be much lower than the number of folios as there’s a duplication of an estimated 20-25% of folios. Equity folios, as a percentage of the total number of folios in the industry, have fallen to 75.4% at the end of September 2013 from 86.2% at the end of March 2008. The number of equity folios touched its peak of 4.11 crore on March 2009.

“Participation in equity MFs is a function of how the market performs. Indian equities have been volatile in the past few years and there’s been no secular gains in equity funds,” said Deepak Chatterjee, MD & CEO, SBI MF.

The Sensex has gained 116% in the past five years and, finally, regained the levels it touched in January 2008, but it’s been a rough ride, characterised by volatility and lack of clear direction. For most part, the market has been trading below the levels touched in January in 2008.

The last one-and-a-half years have been particularly tough: Nearly 45 lakh equity folios closed in FY13 at an average of 3.34 lakh folio closures a month, the highest in the last nine fiscals. This was despite the gains of 8% logged by the Sensex during the year. The pace of folio closures shows no signs of abating, with 20 lakh folio closures in the six months to September this year, at an average of 3.34 lakh folio closures every month.

“The quantum of folio closures is not surprising; if you just look around, you will find that everyone is displeased with equities as an asset class,” said Dhirendra Kumar, CEO of Value Research, a mutual fund tracker.

“Closure of a large number of equity folios is a cause for concern as it increases the concentration risk. It is always better to have 50,000 rather than just 5000 investors, even if all the 5,000 happen to be large-ticket investors,” said Debashish Mallick, MD & CEO, IDBI MF.

“Any consumer-focused industry thrives on numbers. The more the participation, the greater the growth. It is shameful that today India’s largest insurance firm (LIC) has more than five times the number of customers than the entire

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