There is a deceleration but it is not cyclical in nature. Interest does not sustain at all times and at the same level. There is no evidence of any permanent strategic decline in mutual funds or equity assets as such, says Dhirendra Kumar, CEO, Value Research. Excerpts from an interview with ETNOW.
September equity flows have certainly taken a hit. The AUMs (asset under management) have been flat on a month-on-month basis. How would you explain this?
The values were down because AUM is an aggregation of inflows as well as the outstanding units of mutual funds. If the market value goes down, AUM will come down. But looking at the flows, what appears to be a remarkable thing is that the retail investors’ interest in equity fund has been compounding. The design of SIP is such that once you start, you continue doing it. But are SIPs stopping? Is the net number of folios for SIPs slowing down? Not really. In fact, AMFI data yesterday disclosed nearly 2 lakh SIP accounts added during the month which is quite remarkable.
Given that we have seen this big shift, my sense is that most popular, big mutual funds have gained in value. The mutual fund investors may not be very pleased with the performance, which is reflected in the AUM, but the interest in mutual funds is not waning in any manner.
The data from AMFI reveals that it is largely the liquid funds which have seen massive redemptions coming in. What does it indicate to you? Is retail completely turning away from equities or is that a near term aberration?
No, my sense is that money flowing out from liquid fund is a fairly routine thing. Every quarter, liquid funds lose substantial amount of money simply because that is why investors invest their money in them. I do not think it is a reflection of any lack of confidence or anything. If you look at the last five, six years’ data, every quarter it happens. That is the purpose of liquid fund; you put your money and wait for the advance tax, take your money out and pay the taxes. Companies invest large amounts of money in them and optimise their return on an otherwise idle asset.
Fewer investors will be excited about equity market but that does not mean that we have seen any deceleration of a meaningful kind. given the sheer number of SIPs added. There is a deceleration but I do not think it is cyclical in nature. Interest does not sustain at all times and at the same level. I do not think it is an evidence of any permanent strategic decline in mutual funds or equity assets as such.
You Might Also Like:
What is your outlook on midcap flows? Midcap inflow on a month on month basis has risen nearly 20%. What do you believe investors should look at while approaching some of these midcap funds?
The midcap investors think that something which has gone down substantially and has not recovered, will go up. What we saw in the last month and a half is that many quality midcaps were coming at a level which was never seen before because high quality companies have been so pricey of late and that is what the story is.
At a certain level, mutual funds are also sold, investors are vulnerable to buying such stories. They drift from their simple plan of action which is to put long-term money in a manner which is diversifying and be at it through bad times and good times. People try to time it. People try to optimise it. People try to maximise their returns and the understanding is that if there is any kind of turnaround, midcaps will make a sharper comeback. . But by that yardstick, the small cap funds are now far more finely crafted and better classified. They should have attracted the money as well.
What exactly do you think is the outlook in some of the ultra short duration or the low duration fund categories because there has been a net outflow over there as well?
This is a segment of the market where a substantial amount of individual, well-off investors have invested their money. They have been getting nasty surprises for the first time in the last six-seven months, ever since we have witnessed these four-five blowups or the money getting stuck or the segregated accounts getting triggered.
Even though investors are told all the time that mutual funds are subject to market risk, they do not believe it. They think it is something which has to be said. It does not happen to their money. But what has happened over the last six-seven months is driving greater caution and mutual fund classification has added to the trouble in the sense that there are only two-three funds, which you can make sense of with clarity -- the liquid fund, the overnight fund and maybe the ultra short term bond fund. Beyond that, it is a mix of whether it is a duration play, a credit play and the gilt fund which is quite understandable, huge return but no investments.
You Might Also Like:
We have eight to nine kinds of debt funds which are adding to the confusion, leaving aside the FMPs which are also facing some kind of pressure. So, investors are naturally exercising caution, moving their money away and rightly so. People should err on the side of caution when investing in fixed income funds because maximising return was not the expectation and was not the deal. And if you are faced with a situation where risk becomes real, it is better to run.
Excluding liquid funds, we have seen some sort of a shift among investors towards the less risky debt categories like the corporate bond funds, the banking and PSU debt funds. While the credit risk funds which are fairly higher risk category, has seen an outflow to the tune of about Rs 2,000 crore odd. Is this an overall shift that you are observing in sentiment given the kind of volatility that we are seeing in the equities?
No, it has nothing to do with the equity. Fixed income investors came to fixed income funds to optimise the return compared to the fixed deposit or other safe alternate avenues of investing. Mutual funds did present a strong case for themselves in the last 10-12 years. They were able to give superior liquidity and were able to manage the risk.
Now, be it the rush to earn that little extra, or facing the cyclicality of the economy, presenting itself where things are not as rosy as it was expected to be, there is this shift because investors have faced decline in value of such investment which they never experienced before. So the shift away from these funds is quite understandable. Those investors have learnt their lesson the hard way by losing money and so they will err on the side of caution. May be, they will get out of mutual funds forever or will shift downward and understand fund and get into those categories which are far lower risk.
