Equity funds continue to see outflow; SIPs too ‘losing interest’

The mutual fund industry has for the second month in a row seen an increase in its assets under management (AUM). At the end of August, AUM — the total investment corpus available with the mutual fund industry — stood at Rs 7.52 lakh crore, up three per cent. As at end July, the industry AUM was Rs 7.3 lakh crore.

Between June and August this year, the industry AUM has grown by about 10 per cent from Rs 6.88 lakh crore (June 2012) to Rs 7.52 lakh crore. Fund house officials said the industry AUM is on the rise due to the increase in liquidity in the system. This increase in liquidity finds its way into the mutual fund liquid schemes as banks and corporations park their excess money in theses schemes.

Liquid and money-market schemes see regular inflows at the beginning of a quarter and outflows (for advance tax payment) at the end of the quarter. The three per cent rise in August is a reflection of the same, they said.

2nd half unpredictable

“Monetary policy is supporting liquidity. However, it is difficult to foresee what the second-half will bring as typically it is a busy season. Usually, liquidity during this season is tight,” said Ramanathan K, Chief Investment Officer, ING Investment Management (India).

The second half of a financial year witnesses liquidity constraints as the borrowing and credit requirements increase. Therefore, mutual funds see lower investments from institutions. But lowered income fund participation still brings in more business for the industry which is starved for retail participation.

Retail participation has always been low in the industry. However, in the last couple of years, it has gone down further as equity market performances have weakened. Equity schemes continue to see redemptions along with a decline in value in line with the market performance. Even incremental SIP flows, which were robust till about a few months ago, have become weak, said analysts.

According to industry officials, the industry has about 4.6 crore folios of which less than two crore are unique investors. This includes both retail and institutional participants.

In the last one year period (August 2011-2012), the equity AUM has fallen by 1.5 per cent while that of the income schemes has increased by 9.8 per cent. During the same period, liquid and money market schemes have seen a rise of about 14 per cent.


(This article was published on September 11, 2012)
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