Gopal Kavalireddi, head of research at FYERS, said this trend of redemptions could continue till the time stock market rally slows down and consolidates, giving investors the opportunity to deploy their profits into longer time frame instruments like mutual funds.
Overall, mutual funds withdrew a net amount of over ₹56,400 crore in 2020, data available with Securities and Exchange Board of India (Sebi) showed.
“Whenever the markets surge after a big fall, investors pull out. Investors — who had seen losses in the last two years before COVID — had seen profits in the last few months and have booked their profits, resulting in the mutual funds to pull out from equities,” Divam Sharma, co-founder of Green Portfolio, said.
Besides, many investors had started to directly participate in equity markets by opening their Demat accounts. Initial success in the rising markets and the poor performance of many mutual funds over the last few years have further induced them to withdraw from equity mutual funds, he added.
Also, many large companies have gone expensive on valuations, resulting in fund managers to sell and increase the cash allocation, Sharma noted.
According to the data, MFs have been continuously withdrawing money from equities since June 2020 and pulled out over ₹1.24 lakh crore till February.
On a month-on-month basis, MFs withdrew ₹16,306 crore from equities in February, 13,032 crore in January, ₹26,428 crore in December, ₹30,760 crore in November, ₹14,492 crore in October, ₹4,134 crore in September, ₹9,213 crore in August, ₹9,195 crore in July and ₹612 crore in June.
However, they have invested over ₹40,200 crore in the first five months (January-May) of 2020. Of this, ₹30,285 crore was invested in March last year.
Nifty 50 has risen 73 per cent from its lows of March 2020 till date, with the S&P BSE Midcap index rising by 95 per cent and S&P BSE Smallcap index delivering 120 per cent return in the same period.
“Buoyed by this disbelief rally in stock markets, retail investors continue to redeem their mutual funds to shore up their gains of the last one year,” FYERS’ Kavalireddi said.
“Also marred by low mutual fund returns from earlier years, hardships arising due to the coronavirus pandemic, and stagnant incomes unable to counter high inflation, small investors continue to withdraw their profits from most mutual fund schemes,” he added.
According to him, with low-interest rates and work from home concept providing necessary time and money, retail investors have taken a deep interest in direct equity investment, which is very evident from over 10 million Demat accounts opened since the beginning of the ongoing financial year.
On the other hand, mutual funds invested ₹8,162 crore in debt markets in the month under review.
The surge in markets, despite the withdrawals from mutual funds in the last few months, has continued to rise on robust flows from FPIs.
Foreign Portfolio Investors (FPIs) have put in ₹25,787 crore in the Indian equity markets in February after investing ₹19,472 crore in January and ₹1.7 lakh crore in the entire 2020.