The bellwether index S&P BSE Sensex fell about 9 per cent in the just concluded financial year ended March 2016. Yet, equity funds netted over ₹67,000 crore in inflows. This not only marks a second successive bumper year for equity mutual funds (FY15: ₹68,000+ crore) but also points to a significant change in the way investors are approaching equity funds.
In a good year when markets have made strong gains, it is natural for investors to chase returns and go long on equity MFs. But thanks to growing investor maturity and rising popularity of systematic investment plans (SIPs), FY16 despite being a bad year for stock markets, saw sustained inflows into equity MFs.
FY16 in fact is a real change from the way mutual funds earlier operated. Take for instance, FY12 when the Sensex fell 10.5 per cent. Less than ₹300 crore net inflows was all equity funds could garner that year. In FY09 when markets crashed by 38 per cent, just ₹1056 crore flowed in (on a net basis). It is easy to understand that a bad year for stocks is a bad year for equity mutual funds in terms of net inflows.
What happens in a good year? The steroid-pumped markets of 2006-07 and 2007-08 saw the Sensex rise from 11,000 levels to 15,000 in two years. The index gained about 15-20 per cent in these two financial years. Net result: Equity mutual funds saw nearly ₹24,000 crore net inflows for the year ended March 2007 and then another ₹40,872 crore in the 12 months ended March 2008.
This is why FY16, when the Sensex fell from 28,000 levels to 25,000 zone is a break from the past. The year witnessed equity mutual funds receiving net inflows worth ₹67611 crore, almost in step with the record ₹68121 crore received in FY15 when markets gained 25 per cent.
While market players attribute the rising flows to investors taking a more long term approach to equity funds, the rising Systematic Investment Plan (SIP) component in equity funds could also be a factor. SIPs help investors break a large investment into small parts and spread it over a longer duration of time so as to benefit from cost averaging. Once an investor initiates SIPs, he is less likely to tinker with the investments when the markets rise or fall. Also, SIPs fit well with salaried investors' cash inflow/outflows. This could have led to investors continuing with their equity investments even in the volatile markets of 2015-16.
SEBI data shows that in the last financial year alone i.e. April 2015-March 2016, 43 lakh (4.3 million) folios or investor accounts were added only in the equity category. Birla Sun Life Mutual Fund CEO A Balasubramaniam in a tweet shares an interesting statistic, that the 70 lakh SIP count as of March 2015 increased to 91 lakh as of February 2016. This clearly indicates that 21 lakh SIPs were added in 11 months of last financial year.
A larger portion of SIPs is equity focussed and the average ticket size of a SIP is about ₹3,000, according to industry sources. All this means that there is now a big chunk of inflows in equity funds that will keep on coming, irrespective of market swings. This is a sea change from past bear markets when lumpsum investments dominated equity fund inflows, leading to chunky but inconsistent inflows.
Earlier, distributors had a tendency to push new funds or lumpsum investments when the markets were at high points. However, that tendency has reduced and many have now realised the importance of SIPs in creating positive customer experience and a sustainable business model over the long term. AMCs are also focussing more on trail commission so that the length of stay of investors in a fund leads to sustainable payout for distributor/agent/IFA over a period of time, instead of the 'one-transaction' approach mostly followed by insurance agents.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
