Rally effect: new investors signal return of equity

For five years now, market experts have been complaining about new retail investors keeping away from equities. But the stock market rally of 2014 has changed this.

New investors flocked to the equity market but via the mutual fund route this year, according to data representing 91 per cent of the mutual fund industry released by Computer Age Management Services (CAMS), a customer service provider for the industry. Both the number of new investors and the amounts they invested in equity schemes rose manifold in 2014.

New investors poured ₹32,900 crore into equity-oriented funds in the first 11 months of 2014. That was a third of all new flows that funds attracted (₹99,300 crore). Last year, new investments totalled ₹9,500 crore. In 2013, fund investors making top-up requests accounted for three-fourths of new purchases.

Assets treble “Assets grew three-fold for many advisors and their client-base deepened,” says Ramesh Bhat, Founder of IFA Galaxy, a body of mutual fund distributors. Top mutual funds gave returns of 70-100 per cent this year with the equity category averaging 50 per cent. High net worth investors — those who invest more than ₹5 lakh in any scheme — were the most active. They pumped ₹43,000 crore into equity funds until November, over thrice the ₹13,900 crore they invested in 2013. Other retail investors invested ₹26,800 crore compared with ₹18,000 crore in 2013.

City-wise, the fund flow came mostly from the top metros. The lion’s share came from Mumbai, which accounted for 41.5 per cent of the invested funds this year; this was up from 38.5 per cent in early 2014. The contribution of New Delhi, in the second position, rose to 12 per cent by November from 9.7 per cent in January. Vadodara and Rajkot saw new transaction volumes treble between January and November.

Investors also seemed to have become cautious, with a marked increase in investors opting for systematic investment plans (SIPs) rather than putting in lumpsums. New SIP registrations doubled to 23.5 lakh by end November from 10.9 lakh in 2013.

The sums committed also rose as the year progressed. The ticket size of the monthly SIPs increased 11 per cent to ₹3,518 in November from ₹3,149 in January.

Lumpsum investments, on the other hand, were erratic and peaked in June. SIPs rose through the year, and the aggregate amount committed to SIPs in all equity funds rose 35 per cent to ₹1,30,000 crore in November. “Investors both at T15 (top 15 cities) and B15 (beyond the top 15 cities) are taking up SIPs strongly to benefit from investments via mutual funds,” notes NK Prasad, President and CEO of CAMS.

Gathering steam “We saw a lot of young investors who came in with their selection of diversified funds to start monthly SIPs,” says IFA Galaxy’s Bhat. He says the good returns seen since the start of the year stoked their interest. And even as the market dipped, investors saw this as a buying opportunity.

According to data, investing momentum gathered steam in the second half, suggesting that investors turned more bullish post-elections. Over 56 per cent of retail and HNI flows for 2014 came in the five months from July to November.

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