Mutual funds are getting more and more money and a close study of the flows suggests that its not just the quantity but also the quality of the funds that is changing.
More and more money getting pumped into the equity funds is good news for the industry, but what is the more encouraging is that during 2005 they have been accompanied by a relatively lower rate of outflows. As a result, the net inflows, i.e., total inflows as reduced by the outflows have seen a four-fold rise.
It has been argued that most of the money coming into the funds are not fresh investments, but are merely a result of churning. The argument is that a chunk of inflows come from redemptions from other funds as investors keep rotating their money from one fund to another. One may find merit in this argument upon looking at the inflows and outflows during the last two calendar years, i.e., 2003 and 2004, but things were different in 2005.
The net inflows (i.e. net of outflows) during the 2003 and 2004 were merely Rs 4,178 crore and Rs 5,399 crore despite the total inflows of Rs 18,842 crore and Rs 32,740 crore, meaning that investments in equity funds were also accompanied by huge outflows and that net inflows formed only 22 and 16 per cent of total inflows during these two years respectively. But till November-end in 2005, they account for a good 40 per cent of the total money coming in.
During the first eleven months of 2005, the net inflows have been substantially high at Rs 22,908 crore indicating that fresh money has indeed come in, and more people are waking up to the potential of equity funds.
But this is just one side of the story. The surge in investments has been accompanied by a tremendous increase in the proportion of this money being invested in new funds. Thanks to a flurry of NFOs, as much as 42 per cent of total inflows has gone to new funds during new fund offer periods. This figure was only 2.75 and 13.39 per cent for 2003 and 2004 respectively.
While the equity market rally has set the ball rolling, but the huge inflows in equity funds would not have been possible without the marketing efforts that are put in at the time of new fund launches.
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