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Investors Pump-Prime Equity MFs

Net inflows into equity funds pushed them to a 13-month high

Call it the rub off effect. With stock markets running away to log some of the best results in recent times, those investors, who had been standing on the sidelines trying to find a fortunate time to jump into the fray with their money, decided that it was now or never.

The new-found confidence in equity investors stemmed from the fact that the best monthly returns in past 17 years had been recorded by stock markets. They wanted a part of the action. Those who opted not to invest on their own and instead chose the safer, less cumbersome and more investor-friendly option of investing in equity via the mutual funds (MFs), ensured that the industry too logged a new high -- equity MFs attracted the highest net inflows of Rs 1,903 crore in 13 months.

The month of May’s resultant effect on the industry’s total equity assets was phenomenal – they swelled to their 9-month high.

There were 2 equity funds that closed their new fund offers (NFOs) in May, which raised a total of Rs 813 crore, albeit just one fund cornered all the investor-attention and the money. While ICICI Pru Target Returns Fund was able to raise a sum of Rs 800 crore, Edelweiss Diversified Equity Fund raised Rs 13 crore.

Of course, the extraordinary performance by stock markets ensured there was a rush of money towards one category, while other categories suffered from a lack of attention. In short, investors will run to the product they feel will deliver large gains immediately. As a result, while assets in equity funds increased, fixed maturity plans (FMPs) and interval funds suffered yet another month of poor performances, simply because they would not be able to match the achievements of equity funds. Equity funds showed investors the money, and that is where everyone rushed to.

While FMPs' relevance is being questioned, mutual funds abstained from launching any new ones during the month. FMPs were actually redeemed to the tune of Rs 5,895 crore in the month. Interval funds, which are increasingly being wound up, saw redemptions worth Rs 425 crore.

Aside from equity, there were other categories that managed to attract investors’ attention on promises of gains that sounded valid to them. Three open-end income funds were launched during this period -- Canara Robeco Dynamic Bond Fund, Morgan Stanley Active Bond Fund and Morgan Stanley Short Term Bond Fund. They raised a total of Rs 536 crore. Income funds, overall, saw net inflows of Rs 28,114 crore. The reason for Canara Robeco to launch this type of fund may well stem from the fact that it had just one other similar fund. As far as Morgan Stanley was concerned, it has been around in India for a long time without actually trying to expand and had decided to launch a new fund in 2008, but that is when the markets were crashing and they postponed it for a more auspicious time. With markets on a high since March 9, perhaps the fund house thought this was a propitious enough time for a NFO.

Gilt funds saw a net outflow of Rs 792 crore. The GOI yields were on the upside for the month on back of government’s borrowing plans, as a result the gilt fund returns were in the red and investors moved towards short term income funds for safety.

Gold assets surprised, though. With stock markets on an unparalleled growth path, expectations are that investors would sell their precious metal assets and pump the money into equity. While that may well have happened, but at the same time it was a revelation that assets under Gold ETFs also reached their highest levels of Rs 849 crore, bucked-up by new inflows of Rs 113 crore. They, however, still comprise a small part of the total assets of the industry. Gold ETFs returned to their positive ways after two months spent awash in red by logging gains of 2.16 per cent in May. Although assets in other ETFs (other than Gold ETFs), which track market indices, saw a net inflow of Rs 97 crore after 7 months, their assets under management at Rs 853 crore are down 89 per cent from their high of Rs 7,785 in October 2007. FIIs are among the major investors in these schemes and as the global economies have been under pressure, FIIs have been net sellers.

Other categories that recorded net inflows were liquid and money market funds. While the former saw an inflow of Rs 856 crore, Equity linked saving schemes (ELSS) saw inflows of Rs 27 crore. Fund of Funds (investing overseas) recorded a net outflow of Rs 127 crore.


Net Inflows and AUM
Category    Net Inflow / Outflow (Rs Cr)    AUM (Rs Cr)
Income   28,114   337,401
Equity   1,903   141,958
Liquid/Money Market   856   141,059
ELSS   27   18,418
Balanced   -43   15,511
Gilt   -792   5,506
Fund of Funds Investing Overseas   -127   2,895
Other ETFs   97   853
Gold ETFs   113   849
Grand Total    30,148    664,450
All data as on May 31, 2009


While the month’s average assets under management (AAUM) data released earlier by AMFI showed mutual fund assets at 6.39 lakh crore, the actual assets under management (AUM) as on May 31, 2009 were at 6.65 lakh crore, up 11.95 per cent from April's figure.

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