Equity MFs see investor exodus

Excerpts from India Business Hour on CNBC-TV18 Watch the full show » Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Equity mutual funds continue to bleed. Over the last four months, investors have been looking at other investment options for their money. And distributors do not seem to be giving these funds adequate sales support. Mrinalini Krishna and Shruti Rajkumar report.

Since August, over Rs 5,000 crore have exited equity mutual funds. According to AMFI, the exodus began in August, when net outflows from such funds stood at Rs 100 crore - and over the months, the situation has worsened, with Rs 2,100 crore leaving in October.

Experts say this points to investors booking profits, since the Sensex gained 8% over the period in question.

"There has been outflow of funds from existing funds, which is primarily from disenchanted investors who came into MFs for the first time they lost money, now they are recovering money and now they are thinking of sweating up," Dhirendra Kumar, CEO, valueresearchonline.com.

Even new fund offers, which are traditionally seen as collection drivers for equity mutual funds, have received a tepid response from investors. Since August, nine equity NFOs have together managed to garner just a little over Rs 1,000 crore. The lack of push from distributors after the no entry load regime was introduced is not helping matters either.

"I don't think investors are getting as excited about NFOs as they used to be in second half of 2007 or early 2008," Kumar says.

So equity fund offers are taking a hit from two sides. On the one hand, rampant profit booking is keeping outflows high, on the other, the lack of incentives to drive sales means the outflows are not being offset by inflows.