Retail investors shun equity funds, rush to debt funds

Retail investors are taking a shine to debt funds (including liquid and gilt funds) which is evident by the 1.84 lakh increase in folios over the last six months, shows AMFI data. The trend was similar among HNIs. The industry saw an increase of more than 30,000 HNI folios in debt funds category. HNIs are those who invest Rs. 5 lakh and above.

Debt funds have garnered Rs. 43,576 crore in the first half of this fiscal year. “We are seeing an increase in retail participation in debt funds. One year FMPs have been popular among investors. Some retail investors are also investing in three year FMPs,” said Dhawal Dalal, EVP & Head – Fixed Income, DSP Black Rock Investment Managers.

The recent volatility in debt markets has left the investor a bit apprehensive. However we believe that fixed income as an asset class still continues to offer avenues for all interest rate cycles. Hence,  investors would continue to look at fixed income across various product offerings. In the current market scenario given that we expect overnight rates to get aligned towards repo rate in a gradual manner, we expect short term and ultra-short term funds to outperform on a risk reward basis,” said Lakshmi Iyer, Senior Vice President & Head (Fixed Income and Products), Kotak Mutual Fund.

The assets under management in Gold ETFs fell by 11% from Rs. 11648 crore in March 2013 to Rs.10415 crore in September 2013 as investors rushed to book profits. As a result, Gold ETF folios fell by 29938.

“Gold has been on a decline in the recent past and that has created some doubt in mind of investors. It is therefore natural to see some redemption and therefor reduction in folios. The outflows in Indian gold ETFs have been much lower than those witnessed in global ETFs,” adds Lakshmi.   

Chirag Mehta, Fund Manager (Commodities), Quantum Mutual Fund said that the rise in gold prices has spurred investors to book profits. “Gold prices have risen from 25000 in June to 31000 levels which has led investors to book profits. This is evident by the fall in assets under management. The demand for gold is steady now and will pick up as the festive season begins.”

Interestingly, corporate folios in ETFs (other than gold) saw a drastic drop of 81% from 22917 in March to 4243 in September 2013. At the same time retail investors folios in ETFs went up from 1.44 lakh to 1.51 lakh during the same period.

Fund of funds which invest in the overseas markets have been in the limelight lately with the category posting 19% return over one year period. New fund launches and increased interest in this category saw an increase of 1609 retail folios.

Overall, the industry lost more than 15 lakh folios mainly on account of drop in equity fund folios. Retail investors folios in equity funds dropped by a whopping 34.23 lakh from March to September. On the other hand, HNIs folios increased by 14.27 lakh during the same period. The S&P BSE Sensex has risen by more than 500 points from March to September.

Retail folios