According to data available with market regulator Sebi, folio closures totalled 3.47 lakh in December, taking the total number of folio closures in CY13 to 40.86 lakh, signifying the pace of folio closures continues unabated despite efforts by the MF industry to educate investors about staying invested for the long term. The benchmark BSE Sensex rose 1.8% in December.
Interestingly, folio closures continued despite the inflows seen in December and November into equity schemes. In FY14 so far, 32.82 lakh folios have seen closure compared with 36.69 lakh folio closures in the same period in FY13.
Folio closures slipping below 3-crore mark is a cause of concern, said Debasish Mallick, MD & CEO, IDBI MF. However, he added it was only rational for long-term investors who had entered the market in 2007 or 2008 to cut losses or book small profits by exiting during market upmoves. For confidence to return, investors have to see some consistent rally in the benchmark indices.
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.
Folio closures have remained steady throughout CY13. The number of account closures touched a high 6.99 lakh in May but fell below the 1 lakh mark in August for the first time in 19 months, 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 over 5 lakh in September put paid to these hopes. The last three months were the worst quarter in the year, with 12.78 lakh folios getting extinguished. The benchmark BSE Sensex rose about 9% in the last quarter of CY13.
At the end of December, equity folios accounted for about 74.5% of the industrys total of 4 crore investor folios. Assets under management (AUM) of equity schemes stood at R1.58 lakh crore, comprising 19% of industrys overall AUM of R8.25 lakh crore.
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. More than 1 crore equity folios have closed in the last four-and-a-half years.