The Hindu Business Line : `Outflows from MFs not very significant'

Mutual funds added more than seven lakh investors into equity schemes in August. Despite this, redemptions out-weighed investments in equity funds. Messrs Milind Barve of HDFC MF and A. Balasubramanium of Birla Sunlife explain why this happened.

Excerpts from a CNBC-TV18 interview:

What's the retail appetite for equity now because they got quite badly hit after May? Were there redemptions as the market moved up in August or did you see people coming in as the market went up?

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 the 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 more incremental cash being held or is it going into the markets?

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 month or so? Have you seen partial redemptions across funds?

Mr Milind Barve, MD, HDFC Mutual Fund.

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 (Birla Sunlife) 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-recovery, participation has also increased from the investor's point of view.

Mr A. Balasubramanium, CIO, Birla Sunlife AMC (left), and

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

What has been your experience with midcap-focused funds, both in redemption and fresh inflow?

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-cap funds by definition, had a poorer performance.

Therefore, investors probably felt some stress and doubted 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.

I would also say that the fact that the market has recovered from the lows of 9,000, has actually helped to build back the confidence. Volatility is indeed something that one cannot stay away from in the markets, but if you stay on course, stay long term.

For retail investors, the best way to invest in the market is by investing small amounts regularly over long periods of time through SIP (Systematic Investment Plan) or STP (Short-Term Plan) products.

So do you think for this financial year, mutual funds might have to get used to living with a lot less by way of inflows?

Barve: If you compare these inflows with the amount of money raised last year through new fund offers, then probably yes. The fact now is that you will not see as many new funds offers coming into the market.

If you were to compare the figures along with new fund offers, you will probably see numbers maybe marginally lower. But that's not the right way to look at it because essentially you should compare existing scheme sales with what we will do this year, as against last year.

You also have to keep in mind that last year, we had a return in equity, just for the benchmark BSE, of close to 74 per cent. So obviously, when you have a market which is giving those kinds of returns, you will find a significantly larger number of people coming in and wanting to buy equity.

What we might revert to is the systematic small investments, coming more regularly and staying for a longer time.

Last year, the industry grew by some 55 per cent. But I don't think we need to be worried whether we are going to grow at 55 per cent this year as long as we are getting more retail and more long-term money. Growth is important, but I think the quality of growth is equally important.

As a fund manager, are you sitting on a higher degree of cash given the valuations of the market at this point, or are you largely deploying that money?

Balasubramanium: When money is given to the fund managers to invest in equity, largely there is a tendency to stay invested. Only by staying invested in high quality companies, where valuations are comfortable, will you be able to generate a reward for long-term investing.

Generally, one of the things we keep advocating is that while the fund manager keeps evaluating the sectors and the logical allocations to various stocks on an ongoing basis, and keeps tinkering with the asset allocation within the portfolio, one has to take a call on the equity market, especially at the investors level.

Now, seeing the industry moving from 5-8 per cent on the ten-year bond yield, there is actually a need for taking the asset allocation to the investor's level.

So, probably, the fund managers generally do not have the tendency to stay in cash, as the idea is to generate long-term returns for the shareholders. Asset allocations have to be made more at the investor's level.

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