The Hindu Business Line : Inflows drying up for equity mutual funds

INFLOWS into equity mutual funds have all but dried up, according to asset management companies (AMCs). Investors have recast their portfolios as equity mutual funds have been posting negative returns over the last few months.

A slew of equity products - diversified and sector specific - were launched between July and December 2003 when market trend was bullish. Most diversified equity funds registered returns in the 110-180 per cent range during the 12-month period ended March 2004.

The sector average for this category was 39 per cent in the six-month period and 116 per cent for the year. These figures have now been reduced to two per cent and 73 per cent respectively. In fact, the sector average for the three-month period is negative 10 per cent as on May 28, 2004.

AMCs have had to significantly rework their business plans and projections. While most AMCs say that inflows are 70-80 per cent of what was originally planned, they concede, off the record, that new money into funds is almost nil for most of May. "The momentum has been lost completely. Even if markets improve it might take a while before investors start coming back," said the sales head of an AMC.

These companies also said that inflows had gone up substantially the week after the elections results were announced, as investors were keen to use the "dip days" as good entry points.

However, the sustained volatility and bearishness in the market has led to investors deciding to stay away from mutual funds even though net asset values are significantly low currently.

"Our communication to the retail investor has always been to look at equity investments as a long-term commitment. We are confident that a portfolio would give good returns, even if the market does not," said Mr Prakash Dalal, Chief Marketing Officer, Kotak Mahindra AMC.

Fund managers are positive that investors would be back after the Budget announcement. "Investors are a far more matured lot now than earlier. They will be back once there is clarity in the market," said Mr Paras Adenwala, Head (Equities), Birla Sun Life AMC.

Like investors, fund houses also prefer to remain liquid, using the "low" days for value picking. Cash levels in equity funds that usually hover between one per cent and three per cent are now in 3-15 per cent range across most fund houses.

"Budget will set the tone for the future and once investors find comfort with the new Government, they will not have to worry about the market," said Mr Adenwala.