The Hindu Business Line : `MFs: Outflow insignificant vs size'

Mutual funds added more than 7 lakh investors in equity schemes in August. Despite this, redemptions outweighed investments in equity funds. Mr Milind Barve of HDFC MF and Mr A. Balasubramanium of Birla Sunlife explain why this happened.

Excerpts from CNBC-TV18's interview:

What's the retail appetite for equity now? Were there redemptions as the market moved up in August or did you see people coming in as the market went up?

Mr Barve: If you look at the data closely, we actually find that the gross sales for the industry in equity products have actually been positive.

It's quite natural that sometimes at higher levels, you might find people wanting to take some money off the table.

If you look at the gross sales, it has been higher than the previous month. We are seeing a more positive trend in the gross sales numbers that AMFI (Association of Mutual Funds in India) has put up. This is quite encouraging.

What are funds doing? Are they investing in cash or is it more of incremental cash that is being held or is it going into the markets?

Mr Barve: It is difficult to say for different funds. But I think by and large, one would like to be fairly well-invested.

I don't think taking very aggressive cash calls is something mutual funds should be doing, unless they have raised a lot of money in a new fund offer or something similar to that.

To us, it always makes sense to be fairly close to fully invested in most banks.

What has your experience been in the past one month or so? Have you seen partial redemptions across the funds?

Mr Balasubramanium: From the retail point of view, mutual funds have been seeing inflows, though there were some outflows, which were very insignificant.

If one considers the size of the fund today, it is somewhere in the range of about Rs 95,000 crore; so about Rs 600 crore or Rs 700 crore outflow is not very significant. At the same time, unlike the past, where investors generally used to panic during volatile markets, this time there has been a lot of resilience. Post the recovery, the participation has also increased from the investor's point of view.

So while there are some sort of investors, who are willing to take that profit off the table, the long-term investors are clearly looking to come into equity funds, purely for long-term investing.

So to a large extent, people have realised that equity as an asset class is meant for the long-term investing. And while the market could turn volatile mainly because of a lot of synchronising, which is happening in the global market, there is an increased level of awareness, which mutual funds have been creating among the interested public to stay invested in the equity market to get the real advantage of the power of the equity investing. So that is the trend that one has been seeing.

I think the level of acceptance at the ground level is far superior today than what all of us would have experienced maybe few years ago or even a few months back.

What has your experience with the mid-cap-focussed funds, both in terms of redemption and fresh inflow?

Mr Barve: After the peak of 12,700, we did see the fall-off in valuations of mid-caps, which was much more than the rest of the market. So obviously, funds that had a very strong bias towards investing in mid-caps or mid-caps funds by definition had a poorer performance. Therefore, investors probably felt some stress and doubted on how long they should stay in it. But I think most people haven't really reacted very sharply to seeing a dip in the NAV (net asset value) over a short period.

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