Equity MF redemptions in Oct the highest ever — what gives?

Investors booked profit worth Rs 6,558 crore in equity mutual funds in October, the highest ever for any month.

However, about Rs 4,408 crore flowed back into these mutual funds during the month.
Net outflows thus stood at Rs 2,123 crore, also a monthly record.

However, fund managers are far from worried. Most dismiss it as a phenomenon of the equity market movement.

“As we saw, the markets moved up from a bottom of 8000. People booked profits. This keeps happening at various point in time, whenever the markets go up. There was profit booking and new investments into funds have been slow,” Sandeep Sikka, chief executive officer of Reliance Mutual Fund said.

Asked if money moved out of non-performing schemes, in search of better returns, Sikka said, “Track records will keep gaining importance. Money will keep moving out of low performing funds to better performing funds.”

“It is all about the investors’ psychology,” Bhanu Katoch, chief executive officer at JM Financial Mutual Fund, said.

“In 2007, the euphoria was so high that people thought the markets would go up. After
hitting 21000, when the markets touched 17000, people thought it was the best time to invest and put in a lot of money. But when the markets fell to 13000-14000 levels, people just didn’t invest,” Katoch said, adding, “There are stages when you get confused and this is just that phase.”

Has the lack of push from the financial advisors and mutual fund agents, who now have to claim their commissions directly from investors, had an impact? Fund houses nod in affirmation.

Katoch said, “Advisors are missing in the game and the gross sales have got impacted substantially because of this phenomenon.”

He, however, added that the situation will be different a few months down the line. “Most distributors are rethinking their strategy and in-matter of time people will come up with a better mode and will adjust,” he said.

Sikka said Reliance MF, the biggest fund house, was seeing retail investors return.
And they are making learned decisions, feel advisors.

“Most of them are booking profits and putting the money in debt. If they are seeing a 12-15% return in a short span, they are booking profits and are ready to take a notional loss,” Paul D’ Souza, who runs the financial advisory Cuzinns Investment Services, said.
Larger funds are being preferred over smaller ones, D’Souza claimed. “The larger fund assets under management (AUMs) have gone up and smaller fund AUMs have shrunk. So, people have moved out of smaller size funds into larger funds with better brand. The inflows are happening into infrastructure and mid-cap funds.”