FY 2016-17 was one the best years for the mutual fund industry. It saw net inflows of over Rs3.50 lakh crore of which Rs1.34 lakh crore was from equity funds, including ELSS, balanced funds and ETFs. Though the industry saw a decline in net inflows from pure equity funds due to high gross redemptions , it collected more than Rs60,000 crore from this segment.
Higher redemptions created a dent, according to AMFI data. The gross redemption from pure equity funds went up by 65%, i.e., from Rs87,684 crore in FY 2015-16 to Rs144,656 crore in FY 2016-17.
Experts attribute this increase in outflow to rally in equity markets, which may have led investors to book profits. “When the markets are trading at an all-time high, investors tend to book profit. They booked profits when they saw the market was overvalued, and then they may have come back also,” says Rajiv Shastri, CEO of Peerless Mutual Fund.
Jinesh Gopani, Head of Equities at Axis Mutual Fund points out that many investors rebalanced their portfolio in FY 2016-17 considering the high valuations. “Many financial advisors recommended their clients to shift their portfolios from pure equity funds to balanced funds due to higher valuations,” he says.
Seconding Gopani’s view, Jimmy Patel, CEO of Quantum Mutual Fund, says, “Many investors have redeemed their investments from pure equity funds to buy balanced funds. Balanced funds cushion the losses when the market is going through downswings. However, investors should keep in mind that investors will miss out on higher returns when the market takes an upswing because of the limited equity exposure in balanced funds.”
These redemptions led to an overall decline in the net inflows in pure equity funds, which fell 11% last fiscal. Equity funds recorded net inflows of Rs60,270 crore in FY 2016-17 compared to Rs67,611 crore in FY 2015-16.
However, experts believe that the industry need not worry about the outflows. Net inflows in other equity funds like ELSS, balanced funds and ETFs increased during the corresponding period, they point out. These funds saw net inflows of more than Rs70,700 crore in FY 2016-17, double the inflow of Rs34,800 crore in FY 2015-16.
They further say that consistent inflows through SIPs indicate that investors have faith in equity funds. AMFI data shows that the industry has been witnessing monthly inflows of Rs4,300 crore through SIP and almost 99% of these SIPs are in equity funds.
Quantum MF CEO believes that the industry can reduce gross redemption through investor awareness campaigns. These campaigns should encourage investors to stick to their financial goals and remain invested for the long term to benefit from equity funds, Jimmy says.
