Mutual funds lose over 7 lakh folios in six months

The past six months were particularly tough for the mutual fund industry as indicated by the number of folio closures witnessed in the period.

Mutual funds lost over 7 lakh folios (1.5%) during the six months ended March 2012 to end with 4.64 crore folios, according to industry body Association of Mutual Funds in India (Amfi). For the year ended March 2012, the industry lost 7.8 lakh folios or 1.7%, indicating that the number of folio closures rose substantially during the last six months.

The retail category was the biggest loser in terms of folios, especially in equity. This was mainly because of the volatile movement of the equity market. Between October and December, the benchmark BSE Sensex declined 5.4%, but rose 6.4% between October and March, thanks to the surge in FII inflows in the early part of 2012.

The domestic banks/financial institutions category also witnessed a decline of 77% in folios during year ending March 2012 mainly due to RBI’s recent circular restricting bank investment in mutual funds to 10% of their net-worth from January 2012, according to note by Crisil Research.

However, the good news for the industry is that 61% of retail investors have stayed invested in equity mutual funds for more than two years. Out of the R1.34 lakh crore of retail investment in equity mutual funds, R82,577 crore was not withdrawn for over 24 months, as per Amfi data.

Retail investors increased their presence in debt-oriented mutual funds (including gilt and liquid funds) with the number of retail folios rising by 6.1% and 13.8% in the past six months and one year, respectively. “This could be attributed to investors looking at alternate asset classes post the sharp downfall in the domestic equity markets in 2011. Also, rising interest rates in the country may have pushed many retail investors to debt oriented mutual fund categories, especially fixed maturity plans (FMPs),” stated Crisil.

The year ended March 2012 saw 718 FMP new fund offers (NFOs), amounting to R1.17 lakh crore. In terms of AUM, the retail category accounted for 6.15% of total debt AUM in March 2012, up from 4.8% in September 2011 and 5% in March 2011. As per data from Value Research, for the financial year 2011-12, liquid, ultra short term and short term debt funds gave returns of 9.1%, 9.36% and 9.44%, respectively.

Source: http://www.indianexpress.com/news/mutual-funds-lose-over-7-lakh-folios-in-six-months/942150/0