Equity mutual funds face 45% rise in redemptions during 2017 at Rs 1.9 trn

Redemptions at equity mutual funds (MFs) climbed in 2017 amid a sharp rally in stock prices. According to statistics provided by the Association of Mutual Funds in India (Amfi), units worth Rs 1.9 trillion of equity schemes were redeemed in 2017, an increase of 45 per cent from Rs 1.3 trillion redeemed in the preceding year.

The redemptions could be on account of a churn in portfolios by investors and also profit-taking by investors after huge appreciation seen in the market in the past four years.

Because of the high gross sales of Rs 3.43 trillion, equity schemes still managed to garner net inflows of Rs 1.52 trillion. Also, redemptions — though high in absolute terms — as a percentage of total sales was lower than the previous year.

In 2016, the equity redemptions were nearly 70 per cent of the total sales. Last year, it declined to 55 per cent.

Sector officials say there are always a set of investors who tend to book profits after meeting their return expectation. Investors, particularly high net-worth individuals (HNIs), who invested in 2013-14, could be the ones to have taken money off the table, industry players say. 

“There should not be any problem if investors redeem their investments as long as we can create a happy set of investors. There is all likelihood that these investors will come back again later. Meanwhile, we have also sent out emails to distributors and investors saying that if they consider recent years’ return more than their expectations, they should book profits,” said the chief executive of a mid-sized fund house which focusses on the equity segment.

What is important to note is that caution is fast gripping fund managers and they see risks going forward on the back of macro factors — globally and domestic. Apart from requesting investors to tone down their return expectations, they have been advising them not to go overboard on equities at this point of time.

Nilesh Shah, managing director, Kotak Mutual Fund, said, “Investors should not come to equity seeing the recent high returns. That may not be the right approach in current times. We are cautious at this point of time.”

Mahesh Patil, co-chief investment officer (CIO) at Aditya Birla Sun Life Mutual Fund said, “Investors must tone down their return expectations to somewhere near mid-teen. Fund management has its own challenges during such periods. Going forward we have a cautionary stand.” 

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