February 16, 2010

Individual investors return to equity funds

From PFW Bureau

Equity funds saw interest returning from individual investors as they witnessed net inflows of Rs.13 billion, for the first time after five months. The category had witnessed net outflows of close to Rs.80 billion since August 2009 after the ban on entry loads by SEBI.

Equity fund inflows in January 2010 were mainly on account of new fund offers of Rs.16 billion and equity linked saving schemes (ELSS) as investors invested in tax planning avenues in the last quarter of the fiscal. Sales of equity funds rose to around Rs.90 billion in January (levels last seen in July 2009). AUM of equity funds however declined despite net inflows due to mark to market losses following the slide in equity markets.

The month witnessed a rise in mutual fund assets under management (AUM) from Rs.6650 billion in December 2009 to Rs.7590 billion in January 2010 – a gain of Rs.935 billion or 14% owing to net inflows. Mutual funds saw return of inflows of Rs.972 billion in January post the quarter end outflows witnessed in December. Among categories, income funds (predominantly ultra-short term debt schemes) saw the highest net inflows of Rs.1000 billion while liquid and gilt funds were the only categories to witness net outflows of Rs.102 billion and Rs.2.6 billion respectively. However, average AUM declined for the second consecutive month in January 2010 to Rs.7630 billion (including fund of funds). The fall in average AUM by over 4 percent or Rs.329 billion was largely due to inflows being stacked towards the end of the month as well as due to mark to market losses in equity funds.

According to Krishnan Sitaraman, Director – CRISIL FundServices, “The entire amount redeemed by banks in December did not flow back into mutual funds in January as credit growth has picked up. Going forward, on full implementation of the 0.75% CRR hike, bank exposure in
mutual funds may see a slow return to a level lower than those seen in early December 2009 .”

CRISIL debt fund indices finished higher in January while CRISIL equity fund indices fell due to the market slump. The CRISIL STBEX (benchmark for Short-Term Bond Funds) gained 0.49 percent while CRISIL MF~Gilt Index (tracks gilt funds), and CRISIL Fund-dX (tracks Long-Term Bond
Funds) rose 0.38 percent each. CRISIL~LX (tracks liquid funds) yielded 0.28 returns in January.

Among equity fund indices, CRISIL Fund~eX (tracks diversified equity funds) shed 4.35 percent while CRISIL Fund~bX (tracks balanced funds), fell 2.3 percent over the past month. The hybrid CRISIL MIPEX lost 0.46 percent over the past month due to its equity exposure, Crisil said in a statement.