With Indian shares scaling new peaks, redemption of units from equity mutual fund schemes saw a sharp rise in November.
During the month, which witnessed key indices gain nearly 3%, about thousand points in case of BSE’s Sensex; units worth Rs 6,000 crore – highest in four months, were redeemed. Such high redemption has negated the strong sales in equity segment to a large extent.
According to sector experts, a mix of factors have resulted in higher redemptions. This includes profit booking by a set of investors – mainly the High Networth Individuals (HNIs), who had entered market almost a year back. Also, churning by fund managers while doing rotational picks of stocks has added to the redemption figures.
Another factor which prompted outflow of money from equities was fixed income products turning attractive from a short term perspective, say sector executives.
“Gilt funds have seen a surge in inflows as there were talks of an imminent cuts in interest rates. HNIs’ money has moved from equities to debt to some extent,” says Jimmy Patel, chief executive officer (CEO) of Quantum Mutual Fund.
On top of it, new fund launches – majority of which are close-ended schemes – have led distributors to churn investors money from an existing scheme to a new scheme. This also got reflected in the redemption figures.
However, industry officials say majority of the inflows will continue in the equity category. For instance, in November alone, gross sales in equity schemes remained strong at Rs 11,000 crore. They expect that as markets trends higher more investors will pump in money in stocks.
During 2009-2013, country’s equity mutual fund schemes incessantly struggled with the menace of higher redemptions. Closures of equity accounts almost become a monthly norm. This not only caused the equity assets under management (AUM) to shrink, but the investors base also fast depleted. In a matter of three years, the sector lost over 10 million equity folios till March, 2014.