Distributor-route retail investors pull out of MFs

The Covid pandemic has seen an increased interest from retail investors in the equity markets. On the other hand, retail investors, who invested in mutual funds through distributors, pulled out more money during this period.

Data from the Association of mutual funds in India shows that the AUM of retail investors who opted for the distributor route declined 6.6 per cent over the last seven months period (between December 2019 and July 2020) to ₹4,52,889 crore.

Simultaneously, the AUM of retail investors who invested directly in mutual funds grew by 4 per cent to ₹74,079 crore (see graphic).

Distributor-led retail AUM saw a significant drop in March and April, declining around 22 per cent compared to the AUM in February.

AMFI defines retail investors as those who invest with a ticket size of less than ₹2 lakh.

Deepak Jasani, Head – Retail Research, HDFC Securities, says “The base of distributor led retail AUM is 6x of direct AUM and, hence, there may be a lot more investors wanting to take profits or cut losses from that route.

“Also, the fall in AUM between December 2019 and April 2020 suggests that distributors could have influenced the redemption decisions.

“The returns made by such investors after April has been muted compared to direct retail. A lot of direct AUM could also be accumulated through SIPs, which are more stable than lump-sum flows.”

Though there has been a small dip in SIP flows over the last two months, it remains largely unaffected. SIPs account for a sizeable portion of the direct retail money.

Retail participation up

Some of the redemption proceeds from the mutual funds appear to have been directed towards direct equity, or stocks.

According to an industry source, the recent quarter saw a significant surge in retail participation on the bourses in terms of both turnover volumes and the number of new demat accounts.

“Retail participation has risen post the imposition of the lockdown. This is due to a combination of factors.

“Employees working from home have time to track stocks and have dabbled in share and futures and options (F&O) to make fast money when the cost of trading has fallen. An oversold market helped them make money,” Jasani explains.

“According to a recent survey, three out of 10 mutual fund investors may have moved to investing directly in stocks.

“The reasons for this include investors thinking that Covid-19 induced correction in stock markets offers better opportunity in the market and they can better utilise this opportunity than the professional fund managers who have not performed well.

“Also, some investors think that cost of direct trading is less than the through mutual funds,” Jasani adds.

Higher outflows in metros

AMFI data further show that retail investors in T30 (top 30 cities) pulled out more money from mutual funds compared to investors in the B30 (beyond top 30 cities). During the period (between December 2019 and July 2020), AUM of retail money from T30 declined by 7 per cent to ₹3,37,845 crore while the AUM of B30 declined only 2 per cent to ₹1,89,123 crore, during the period.

However, overall retail investor accounts in mutual funds are on the rise.

According to available data, the total number of retail investor folios stood at 8.3 crore in June 2020 against 7.8 crore in December 2019.