Small investors are not just staying away from stocks, they don?t seem to be signing up for systematic investment plans (SIP) either. Going by data collated by registrar Karvy Computershare, fresh registrations have been steadily falling since the start of the year and at 28,000 in July, have hit a 16-month low.
What?s worse, investors are also checking out of equities, with cancellations of SIPs going up by the day ? in July, they hit a16-month high at 73,000. According to Ajit Menon, executive vice-president and head (sales), DSP BlackRock Investment Managers, the volatile state of the equity markets has tuned small investors risk-averse. ?They now feel more comfortable with products that can give guaranteed returns such as fixed deposits of banks,? said Menon.
While the benchmark BSE Sensex has risen by about 6.5% in the past one year, the markets have been characterised by bouts of intense volatility, understandably unnerving investors.
Equity schemes of mutual funds have seen outflows in six of the seven months this calendar year. And the uptrend in SIP cancellations has now extended over the last five quarters ? 1.23 lakh in Q1FY12, 1.41 lakh in Q2FY12, 1.32 lakh in Q3FY12, 1.55 lakh in Q4FY12 and 1.71 lakh in Q1FY13. On the other hand, live monthly SIP folios touched an 11-month low in July.
?The numbers clearly indicate that retail investors aren?t really inclined towards equities,? said Deepak Chatterjee, CEO, SBI Mutual Fund.
Added Sanjay Sachdeva, president and CEO, Tata Mutual Fund: ?Investors who started investing through SIPs two, three or four years ago haven?t seen good returns as the markets were flat. This may also have prompted them to stop the SIPs.? After a strong rally that started in May 2009 and saw the Sensex hit a lifetime high of 21,005 points in early November 2010, the markets have stayed sluggish, rallying intermittently.
DSP?s Menon also reckons that high inflation and rising EMIs (equated monthly instalments) have eaten into savings of many retail investors, which in turn may have compelled them to break their SIP investments into mutual funds. ?Let?s say an investor was doing SIPs in three schemes earlier. He may have chosen to stop one of the SIPs to meet increased expenses,? explained Menon.
However, market watchers insist that the situation may not be as grim as the numbers make it out to be. According to Chatterjee, the market is just going through one of its rough cycles and one can expect fresh investments into equity schemes once there is some semblance of stability.
The assets under management (AUM) of the mutual fund industry stood at Rs 7.3 lakh crore as on July 31, 2012, according to industry body Amfi. Funds have been struggling to attract investments ever since entry loads were done away with in August 2009. Equity schemes have seen inflows in only 13 months after the entry load ban was enforced. In FY12, equity funds saw modest inflows of Rs 122 crore and outflows in six out of the 12 months.
Last month market regulator Sebi introduced new guidelines aimed at improving the penetration of the mutual fund industry and giving fund houses more leeway to manage expenses. However, industry watchers are awaiting more details regarding the interpretation of some of these guidelines.