The mutual fund (MF) industry is witnessing a sharp drop in fresh allocations to equity schemes, which has put industry executives and advisors on tenterhooks. It has raised concerns over the impact on industry players’ top lines.
“Despite the recent rebound in the markets, individual portfolios are still bleeding. Confidence has remained shaky, which has kept fresh flows away,” said Bharat Bagla, an independent financial advisor (IFA).
Industry participants say there have been significant queries by investors looking to stop their systematic investment plans (SIPs).
“Small-ticket investors, who work as auto drivers or in other unorganised businesses, have started calling for discontinuing their SIPs. Given the unsteady environment for their businesses, they don’t want to bear the SIP bounce charges in case they are unable to maintain sufficient funds,” said Ritesh Sheth, co-founder of Tejas Consultancy.
“For salaried clients, priorities have changed as they want to ensure they have enough liquidity to take care of obligations like EMIs for home loans,” Sheth added. Redemptions in equity schemes jumped 75 per cent month-on-month in June, to Rs 13,520 crore.
While monthly contribution through SIPs has remained close to the Rs 8,000 crore-mark, industry participants suggest there has been a cut in the average ticket size.
This could be gauged from the monthly decline in SIP contribution, which was 2.4 per cent lower at Rs 7,927 crore. This is the third month in a row to have witnessed a dip in SIP flows.
The SIP book is now 8 per cent lower than March’s peak of Rs 8,641 crore.
In addition, industry participants say the introduction of stamp duty on purchase of MF units may also impact flows hereon.
“Earlier, investors could be advised to park their surplus in liquid funds, and a systematic transfer plan (STP) could be initiated to a suitable equity scheme. However, investors may now shy away from such arrangements as stamp duty charges would be applicable on the liquid fund purchase and the STP,” Sheth pointed out.
A stamp duty of 0.005 per cent is applicable from July 1 on any purchase of MF schemes. Industry executives say that while investors are shying away from making fresh allocations to equity schemes, there has been some pick-up in direct stock allocations among retail investors.
“Investors are looking at stock-specific opportunities, with sharp corrections in several quality stocks. Brokerages have also been reporting a spike in opening up of new demat accounts,” said the CEO of a fund house.
In June, net flows to equity schemes were 95 per cent lower than May, at Rs 240 crore. This was the worst month for equity schemes in over four years.