Mutual funds lose nearly 5% of retail folios in six months

India Infoline News Service | Mumbai |

Declining interest rates saw retail investors adding gilt funds to their portfolio with retail folios in this category almost doubling in 6 months from 27,145 folios to 51,763 folios as of March 2013

Mutual funds lost nearly 5% or over 21 lakh retail folios (Table 1) over the past six months ended March 2013 as per the data released by the Association of Mutual Funds in India (AMFI).

The decline in retail folios was mainly in the equity category, which was impacted by the ongoing volatility in the equity market. The CNX Nifty has declined by 3.8% and 0.4% in the three months and six months period till March 2013. Another observation was that the gilt category, which has the smallest base of investors, saw a steep rise in folios during this period mainly due to fall in interest rates.

The RBI lowered its key lending rate, the repo rate, twice in the last three months (January and March) by 25 bps each to 7.50%. Accordingly, a fall in interest rates results in a rise in bond prices and positively impacts gilt fund NAVs (returns).

Table 1: Investor-wise composition of number of folios (in lakh)
Investor Classification No of Folios Mar-13 No of Folios Sep-12 Change % Change
Corporates 4.85 3.68 1.17 31.9
High net-worth Individuals^ 9.36 8.94 0.42 4.7
Retail 414.04 435.5 -21.46 -4.9
Others* 0.03 0.04 -0.01 -29.7
Total 428.28 448.16 -19.88 -4.4
* includes Banks / FIs and FIIs; ^individuals investing Rs 5 lakhs and above; Numbers in lakhs

Over 60% of retail equity AUM remains invested for over 2 years
Tenure-wise analysis of assets under management (AUM) across investor types and categories for the half year ended March 2013 showed that 63% of the retail AUM stayed in equity mutual funds for more than two years. A similar trend was also observed in the data released by AMFI as of September 2012. Out of the Rs 1.28 lakh cr of retail investment in equity oriented mutual funds, Rs 80,628 cr of investment continued for over 24 months.

In the high net-worth individuals (HNIs) category, 49% of them stayed invested in equity mutual funds for more than two years. Investors investing in equity mutual funds should resort to long-term investments in the period of 7-10 years to benefit the most from the underlying asset class. For instance, the equity market represented by the CNX Nifty delivered over 20% annualised returns in the 10-year period ended April 30, 2013 compared to less than 4% annualised returns in the three-year period.

Retail folios in gilt category rose sharply but on a lower base
Declining interest rates saw retail investors adding gilt funds to their portfolio with retail folios in this category almost doubling in 6 months from 27,145 folios to 51,763 folios as of March 2013. HNIs and corporates too added folios in this category. HNI folios under gilt category rose from 4,167 folios as of September 2012 to 7,231 as of March 2013 while corporates folios in the category rose from 2,960 folios as of September 2012 to 3992 folios as of March 2013. The sharp growth in the folios is also an outcome of a low base of investors in this category.

Corporates dominate mutual fund AUM
Corporates continued to dominate mutual fund AUM with a 46% share in March 2013, slightly lower than 47% in September 2012. HNIs with a 28% share were the second biggest AUM contributors followed by retail investors with 23% share.

 

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