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There has been a steady exodus of retail investors from the mutual fund industry underscoring SEBI Chief Mr U.K. Sinha's concerns about bringing back this segment into the stock markets.
In 2010-11, mutual fund retail folios declined by 8.7 lakh, or dropping two per cent, to 4.60 crore folios. Retail investors account for close to 97 per cent of the total folios in the industry.
On the whole the mutual fund industry in FY11 saw a decline of 7.2 lakh folios. The industry's assets under management (AUM) during the same period fell by Rs 17,569 crore.
Difficult task
Mr Sinha, in recent interviews, has said that SEBI's priority is to bring back retail investors directly through the stock market and indirectly through the mutual fund industry. However, the volatile markets and the slow-down of the mutual fund business may just make achievement of this task a little bit difficult, said market-men.
Equity folios have seen their shares decline in the last two years. In fiscal 2009, the equity folios accounted for 87 per cent of folios among the product categories. This came down to 85 per cent in 2010 and 82 per cent in 2011.
The stock markets talk of a similar story. In calendar year 2010, the Sensex gained more than 5,000 points rising 25 per cent. Retail investors on the BSE booked profits during the year as the markets surged and they were net sellers for Rs 12,636 crore. Year 2011 has already shown little promise for the markets. FIIs, who were the main market participants through 2009 and 2010, have been withdrawing funds since January this year.
As far as the mutual fund industry is concerned, the only way to bring the retail investors back in are through changes in the distribution system, say fund house officials and analysts alike. Though they weren't willing to be quoted on it, many fund house officials said that the entry load ban has made the cost of acquiring and servicing customers for distributors difficult. “Distributors are not interested in the retail segment anymore,” said an official with a mutual fund house.
The stock market volatility has been a big deterrent. The market moved too suddenly and too fast, said analysts, and retail has not been able to keep up with it. “Towards the end of the last rally, retail investors did participate in the market through IPOs, especially the big ones like Coal India and MOIL. But post these issues, retail investors haven't really participated,” said Mr Sudip Bandyopadhyay, Managing Director and CEO, Destimoney Securities. “For retail to participate in the market, good IPOs and sustained upward movement in the market is required,” he added.
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