Redemptions from equity funds hit two-year high

MUMBAI Mon Oct 8, 2012 1:49pm IST

A trader looks at a screen at a stock brokerage firm in Mumbai March 7, 2008. REUTERS/Arko Datta/Files

A trader looks at a screen at a stock brokerage firm in Mumbai March 7, 2008.

Credit: Reuters/Arko Datta/Files

Rajalakshmi (C), 28, smiles after winning the Miss Wheelchair India beauty pageant in Mumbai November 26, 2014. REUTERS/Danish Siddiqui

Miss Wheelchair India

Seven women from across India participated in the country's second wheelchair beauty pageant, which aims to open doors for the wheelchair-bound in modelling, film and television, according to organisers  Slideshow 

MUMBAI (Reuters) - Redemptions from Indian equity funds surged to a two-year high in September as retail investors cashed in after a strong rally in stock markets, a move that will put further pressure on asset managers' profits.

Net redemptions from equity mutual funds jumped to 33.06 billion rupees in September, for a fourth month in a row, according to data released by industry body Association of Mutual Funds in India (AMFI).

Redemptions surged even after equity funds in India last month posted their best returns since January, benefitting from a rally sparked by government fiscal and economic reforms and monetary stimulus from global central banks.

The bulk of fund sales came from retail investors who had plowed money into equity plans in 2007-2008, often for the first time, but who went on to stomach a volatile period in Indian stock markets that pressured fund returns.

"These are primarily the last leg of redemptions from the NFOs (new fund offers) that hit the market in 2007-08," said Dhirendra Kumar, CEO of mutual fund tracker Value Research.

"They were first-time investors who came into the market on the hype then, but have been greatly disappointed and are now just beginning to recover some of their losses."

The BSE Sensex has gained around 22 percent this year, making it one of the top performing markets in the region. On Monday, the index slipped 0.9 percent heading for a second session of losses.

The rally has been driven by foreign institutional investors, who have bought a net 857.1 billion rupees in Indian equities, after being sellers last year.

By contrast, asset managers in India are facing falling domestic equity investments during a time when they are already reeling from stiff competition in a crowded marketplace.

The majority of India's 44 fund houses are unprofitable according to their annual financial reports.

The industry is also constrained by heavy regulations and burdensome 'know your customer' rules that make opening funds for retail investors complicated in India.

Indian stock markets have also been volatile. After surging in 47.2 percent in 2007, the BSE index has posted big annual swings, and is still nearly 11 percent below a record high hit in January 2008.

"Market is beginning to go up in a sustained way but it has to stick for a while to get the new fund investors' attention ... investors chase past performance," Kumar said.

September's outflows bring equity withdrawals so far this year to 96.73 billion rupees, the second time in three years when redemptions could outpace new investments.

Though equity funds make up less than a quarter of overall assets under management in India, they provide asset managers with higher management fees, making them key for profitability. (Editng by Rafael Nam and Sanjeev Miglani)

FILED UNDER:

Online Grocery Shopping

REUTERS SHOWCASE

Vodafone Tax Dispute

Vodafone Tax Dispute

India advised against challenging Vodafone tax ruling - source  Full Article 

India-focused Funds

India-focused Funds

India-focused hedge funds up over 40 pct YTD - HFR  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

Falling Oil Prices

Falling Oil Prices

OPEC heading for no output cut despite oil price plunge  Full Article 

SAARC Summit

SAARC Summit

India-Pakistan friction threatens South Asia trade at Himalayan summit  Full Article 

RBI Rate Hopes

RBI Rate Hopes

Markets pricing in rate cut, despite wary RBI  Full Article 

Land Disputes

Land Disputes

Disputes over land for industry on the rise in India, angering locals - charities  Full Article 

Google in Europe

Google in Europe

Insight - Behind Google's Europe woes, American accents  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage