The Hindu Business Line : MFs to face large-scale redemptions?

Are large-scale redemptions waiting to happen in the realm of mutual funds? Indications that investors, especially the smaller variety, are already moving out of equity funds are now firmly in place, giving rise to concerns that money will soon start flowing out into less-risky alternatives, liquid and other short-term funds included.

While there are no long queues of redemption seekers yet, distributors report that many of their clients are already contemplating an exit. The reason, they add, is simple: NAVs are quickly losing steam, giving rise to the feeling that this may be the time to scale down holdings.

The trend, investment circles say, will actually assume bigger proportions if the market moves up somewhat from the current level, providing an opportunity for equity fund investors to take home more.

However, not every one is willing to take the call that higher levels will be reached in the very near term.

According to Mr B.K. Dalmia, a CFP who advises MF investors, "some people are willing to exit right now... some others are probably waiting for a firmer direction to set in. A clearer picture will emerge in the next few days".

Fund houses informally agree - a few are ready to be quoted officially on this, though - that equity schemes have started losing assets. They nevertheless concede that investors are mostly flighty, and the current scenario will test how sticky their allocations are. The reference is to the prevailing market conditions, especially to the indices that are fallen considerably from their peaks. On Thursday too, the Sensex continued to fall, declining at the end of the session by over 3 per cent to close marginally above 10,000 points.

Mr Naresh Pachisia, MD of stock broking and distribution outfit SKP Securities, said investors were considering their positions carefully vis-à-vis the latest situation. "Equity funds have helped create a lot of wealth in recent times. Those who benefited significantly will probably find it easier to pull out at this stage," he maintained, adding that systematic investment plans will continue to remain a handy tool in the days ahead.

Redemptions from equity funds, it is also felt, may well create a new set of problems for investors: As Mr Ranjeet Mudholkar, CEO, Financial Planning Standards Board India, puts it, equity investors would have to utilise the proceeds in a responsible, intelligent manner. "Re-deployment of that money will remain a big issue. Turning to liquid funds or short-term plans may provide no more than temporary solutions," he maintained.