The new year doesn't seem to have brought much relief to the MF industry. Equity folio numbers continued to decline in January with the closure of about 3.5 lakh folios, taking the total number of folio closures in FY13 to nearly 40 lakh.
While the number of equity folio closures are not as dismal as in December, which saw more than 6 lakh folio closures, it is still a cause for concern as long-term investors seem to be using the market rally as an opportunity to exit after booking profits or cutting their losses.
As of January, equity folios accounted for 77% of the industry’s total of 4.32 crore investor folios. The benchmark BSE Sensex gained about 2.4% in January, crossing the 20,000-mark for the first time in nearly two years.
“A lot of the old folios that were created during the 2007-08 period are finally breaking even since the market has picked up. Some of these investors may have exited or shifted to asset classes such as debt and gold,” said Sarath Sarma, executive director, IDBI Asset Management.
Sustained equity folio closures is not the only evil the industry has been grappling with in the past few months. Equity MF schemes have seen outflows for the last eight months, with January seeing outflows of R2,501 crore. What's more, mutual fund managers have net sold shares worth more than R19,000 crore between July and January, according to Sebi data.
While folio closures have accelerated since August last year, industry officials are seeing the brighter side of things.
“Folio closures doesn't mean that investors are exiting completely. Some of these investors may be consolidating their portfolio into select funds with a good track record that have the potential to give good returns over the long term,” said Sarma. Market participants are also hopeful that the recently launched Rajiv Gandhi Equity Savings Scheme will help in the addition of several new folios in February and March.
The proportion of MF assets in the equity segment as of January stands at 23% compared with 31% in the beginning of FY13. During the period, average AUM for the equity segment has risen 4.4% to R1.9 lakh crore. The month-on-month count of industry’s overall folio declined marginally by 0.6% to 4.32 crore in January from 4.34 crore in December 2012.
The MF industry has been struggling ever since entry loads were abolished in 2009. Equity schemes have seen inflows in only 13 months