Mutual funds lose 2.6L equity folios in April despite market?s 3.5% gain

The new financial year has failed to bring much cheer for the mutual fund industry, with more than 2 lakh equity folios closing in April, even at a time when the equity markets in the form of BSE Sensex, NSE Nifty were on the rise.

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A little over 2.6 lakh equity folios closed in April, about 40,000 more than in the previous month, data collated from market regulator Sebi show. This was despite a 3.5% rise in the BSE Sensex during the month. As of April 2013, equity folios accounted for about 77% of the industry?s total of 4.26 crore investor folios.

One of the key issues facing investors remains lack of clarity on direction the equity markets may take. While the Sensex gained in April, the index saw monthly losses in February and March. This, after the BSE Sensex hit 20,000 in January for the first time in two years.

These volatile moves have left investors nervous. If anything, long-term investors, especially those that entered the market in 2007 and early 2008, have used the rallies to exit the equity market after booking small profits or cutting losses.

?Investors have lost confidence in the equity market,? said Nilesh Sathe, CEO, LIC Nomura. ?Long-term investors have been waiting for the NAV (net asset value) of their investments to go up to ensure that they don’t exit with a loss. Some of these investors have exited with every market upswing.?

Nearly 45 lakh equity folios closed in FY13, the highest in the last nine fiscal years. Folio closures gained pace in September last when the market rallied on the back of reform initiatives announced by the government when P Chidambaram took over as finance minister.

Market watchers feel sustained equity folio closures are a worrying sign as equity assets are a lot stickier than debt assets and can generate higher revenues. Not surprisingly, the industry is hoping that things change soon.

?We are hoping that the equity market stabilises and some confidence returns among retail investors,? said Sathe.

However, equity folio closures are not the only concern that the mutual fund industry is grappling with at the moment. Equity MF schemes have been witnessing steady outflows for many months now, though the outflows in April were relatively low at R80 crore.

Folio closures have been a regular feature for every single year since FY10. Between FY05 and FY09, new folios were created ? FY08 seeing maximum gains, with an average of about 34,000 folios created per day.