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Double Whammy

Equity schemes have been hit by both lower inflows, higher outflows

This article appeared in the November 15 - December 14, 2009 Edition of Mutual Fund Insight

Investors have not recovered from the market collapse of 2008 and are wary of getting their fingers burnt. So when the Sensex closed above the 17,000 mark, they decided to book profits. Redemptions in equity mutual funds came at Rs 6,384 crore (October), the highest since January 2008 when the Sensex touched 21,000.

On the other hand, the new load regime has hit sales. Sales from existing equity funds have hovered around Rs 4,000 crore for the past three months after hitting a high of Rs 8,737 crore (July). There was a spurt in sales (existing equity schemes) of 375.87 per cent between April and July 2009 on the back of a strong recovery that saw retail investors flocking to the market. This was also coupled with the fact that the fund industry went into overdrive to sign up more investors ahead of the entry load ban.

Equity funds have registered net outflows of Rs 4,021 crore since August 2009 bringing down the net inflows for 2009 to Rs 6,853 crore, according to data with the Association of Mutual Funds in India (AMFI).

In a recent press release, Saurabh Nanavati, CEO, Religare Mutual Fund said that the period between August and October 2009 witnessed equity outflows from the industry - both from a transaction perspective as well as assets under management (AUM) of over Rs 3,900 crore moving out. He attributed this to profit-booking by investors and a slowdown in fresh collections due to the distributor community undergoing a change in their business models.

He’s not fretting though. The NFO of Religare PSU Equity Fund collected over Rs 229 crore, with close to 37,000 applications.