A Balasubramaniam, CEO of Birla Sunlife AMC says lack of lack conviction is preventing inflows into equity funds. "We have not seen any significant inflows in mutual funds," he says adding, "positive inflows were seen only in the month of May."
According to data released by the Association of Mutual Funds in India (AMFI), the fund industry shed around Rs 24,000 crore during the month of June, which led to decline in the overall asset base to Rs 6,88,825 crore. Most fund categories witnessed outflows during the month.
Liquid funds saw a maximum outflow worth over Rs 25,000 crore, followed by Gold ETFs (Rs 227 crore), Equity (Rs 186 crore), ELSS (Rs 100 crore), and Fund of Funds (Rs 44 crore).
However, Balasubramanian says the mutual fund industry has not seen any significant redemption pressure. "We have seen significant flows in the debt fund with a two to three year horizon," he told CNBC-TV18.
Below is the edited transcript of Balasubramanian’s interview with CNBC-TV18. Also watch the accompanying video.
Q: Why are mutual funds (MFs) on the sell side? Are you witnessing any kind of redemptions on profit taking or you are just tactically cautious?
A: If you look at the industry trend for the last three months we have not been seeing actually significant close except the month of May. The net inflows in the equity MFs were positive to the extent of about Rs 533 crore. But industry as a whole there has not been significant flows that have been coming in.
Even for the quarter ending June, equity schemes did not witness much of inflows except the inflows that has been coming largely through the SIPs (Systematic Investment Plan) form otherwise there has not been a significant inflow, which essentially reflects on the MFs buying and selling pattern.
Also I would assume it’s a function of rotation of sectors from one sector to the other sectors. There are certain sectors which pose a little more promising from the point of view of investment and could warrant some bit of churning of assets from one to other. That could also be one of primary factors because of which you would probably see the MFs numbers being little negative.
Q: Is the selling in a market a function of the fact that you guys are facing redemption pressure or that you are taking a call to increase cash levels since inflows are so low and you want to have more liquid cash ready?
A: There have not been any redemption pressures. On the contrary the view that has been expressed by the MF industries including ourselves is to time to build assets where nobody is actually looking at investing in equity. So that being the premise on which the entire equity asset class has been sold is also coming at a time where some of the other macro factors could turn positive from the point of view of creating some bit of bottom from the equity market point of view.
As a result of that there has not been a significant redemption pressure. Whatever is coming is more of very marginal outflows which cannot be construed as the industry is facing redemptions. It is a question of time for the inflows to start coming and it is a question of convection.
As of now if you look at the broad industries trend there has been a significant inflow that has been coming into the fixed income schemes especially the one which is managed using the durations into two-three years kind of duration funds as well as a longer duration funds.
We have been seeing some good inflows coming in. That is a function of the outlook on interest rates and outlook on the broad market which could come in from the fixed income side. But, equity is only a question of time. There has not been a significant pressure that is coming and hitting the industry which is creating a bit of negative impact.
Q: What exactly has happened on the SIP side because till last month there were reports that a couple of brokerages had to either withdraw their SIP schemes or go in for some kind of extension because they just weren’t getting enough interest?
A: There has been the resistance that has been happening in SIPs which is nothing but newer people are getting registered in SIPs from long term savings point of view. At the same time the people who have been coming into SIP for the last many years, they are also not seeing much return coming on SIPs given the fact that equity market itself has remained somewhat flat for the last 5 years.
It has been in the range of about 7-8% kind of return on 5 years roughly about 13% kind of return and if you take on a 3 year basis it is just about 4% return. SIP as an asset class also is supposed to deliver a return more in line with market then.
But the fact of the matter is the diversity equity funds and SIPs, though I can put it little on the positive side that an SIP is accumulative basis of the last 5 years are generated almost 60-70% return higher than the Sensex or Nifty. But given the fact that another asset classes such as fixed income or gold have given return much better than SIP return on equity, there is bound to be some bit of cancellations.
Having said that, clearly the focus for the industry including ourselves is to build SIP on asset book which ultimately is going to make the flows into the mutual funds irrespective of what are the market conditions are.
Even today also if you look at the industry has been getting monthly inflows to the extent of about Rs 1200 crore, which is not a small amount. We are seeing redemptions coming in for those investments which may be not getting renewed or some outflow is happening from HNIs.
Q: What is happening on the fixed income front? Are you seeing continuous interest there and what kind of products are getting in most of the money?
A: The good trend on fixed income is clearly because of the acceptance for the interest rate view that has been expressed that we’ll probably see the down trending interest rate as we move forward. The acceptance from investors and distribution community is very high of investing into high duration funds. I have been seeing money coming into medium duration funds. When I mean medium, I mean to say anywhere between 2-3 years.
To give you an example we run one of the largest debt fund, which is a Birla Dynamic Bond Fund. I am happy to say that the fund has seen inflows to the extent of about Rs 7,000 crore in the last one year.
Today we have a size of in excess of about Rs 11,000 crore, which is nothing but reflection and also the conviction, both from the fund house distribution community as well as investors to take a bet on the actively managed duration funds which is a function of interest rate view.
Historically we have seen that whenever the interest rate view changes, outlook changes and participants become confident that industries will turn downward, clearly the inflows into the MIP schemes and actively managed funds do increase significantly.