‘‘Retail investors get their timing all wrong with equity funds. They have lost their appetite for equity after the market crash.'' These are the beliefs perpetrated by commentators analysing the monthly data on mutual fund flows from the Association of Mutual Fund of India (AMFI). However, a closer look at the data reveals that they are quite far from the truth. It is data on gross inflows and outflows from equity mutual funds, rather than the more commonly used ‘net inflows', that help one get the true picture on retail behaviour. ‘Net inflows' deduct the total pullouts from equity mutual funds by one set of investors from the total investments made by another wholly different, set.
Tracing gross flows
Tracing the gross flows on a quarterly basis over the past four years throws up the following three trends:
Even as gross inflows into equity funds have charted a steady course in the past two years, there have been simultaneous redemptions from equity funds. They hit a record low (Rs 4,700 crore) in January-March 2009, picked up in subsequent months and peaked (at Rs 29,000 crore) in the recent July-September 2010 quarter. Now, given that the Sensex was nudging the 20,000 mark in that period, it was an exceptionally good time to cash in on equity funds.
Overall, this shows that retail investors putting in small sums into funds with a good track record. They are doing it regularly, irrespective of market swings. They are using market highs to cash in on their older investments. All this is surely a sign of collective wisdom at work!