COMMENT: Funds data shows capital protection is investors' theme for 2016

Shishir AsthanaMoneycontrol Research

The year 2016 has been a bad one for equity markets. The BSE Sensex has not done much with a 1.17 percent return since the start of the year. No wonder mutual funds have not been able to attract money.

According to data provided by Association of Mutual Funds of India (AMFI), equity funds have been able to attract less than half of what they did last year. In the first ten months of the current year equity-based funds attracted Rs 28,517 crore as compared to Rs 57,874 crore.

The present year has been marred by uncertainties internationally which had a direct bearing on investor perception. China’s depreciating currency, the US election and the threat of an interest rate increase all added to the volatility in the markets. While Indian investors were wary about investing in the country’s equity markets, foreign investors continued to believe in the India story and pumped close to Rs 41,000 crore into the markets.

However, what seems to have scared foreigners away was a combination of the US election outcome and the demonetisation measures announced by Prime Minister Narendra Modi on November 8. In the month of November, FIIs withdrew Rs 17,737 crore from Indian equities. Data for November is not yet available — in all probability, it will show withdrawals.

Though equity mutual funds have had a tough year, various segments in the sector tell a different story.

High frequency and algorithmic trading has left little yield for arbitrage funds, which have seen a fall of 68 percent from Rs 14,499 crore to Rs 9,826 crore, according to an article in Business Line.

In the case of high net worth individual (HNI) investments, also known as lumpsum investments, the trend showed a net withdrawal of Rs 10,147 crore for the first nine months of the current year as compared to an investment of Rs 36,762 crore during the same period previous year. HNIs are like hot money and try to catch the trend of the market. A choppy market has caught them on the wrong foot, resulting in their exits from funds.

But there is one segment that is steadily increasing. According to AMFI website, systematic investment plans (SIP) accounts have crossed the 1 crore mark with a monthly addition of around Rs 3,000 per account. AMFI says mutual funds are adding 6.30 lakh new SIP accounts every month.

On an overall basis AMFI data shows more money was attracted by income funds during the time when equity, balanced and liquid funds saw comparatively lesser money coming their way. As compared to Rs 38,098 crore income funds have seen inflows of Rs 152,304 crore, a near four-fold increase.

Uncertainty results in money moving to the shelters of debt funds where capital is protected, rather than volatile segments like equity and balanced funds. November too might continue to see the same trend, given the uncertainties that swirl.