Equity fund collections dip with market slump - Views on News from Equitymaster

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Equity fund collections dip with market slump

Feb 15, 2001

Quarterly data released by the Association of Mutual Funds in India (AMFI) reveals that growth (equity) fund collections witnessed a fall in the last quarter (Oct-Dec) of Year 2000 largely due to uncertainty in equity markets.

BSE Sensex over the quarter Oct-Dec 2000

Equity markets have shown little character over the quarter Oct-Dec 2000. Fall in dotcoms across the globe (and in India) have fuelled concerns of a breakdown in the new economy model.

Fund flows in the quarter Oct-Dec 2000
Fund Type Inflows Outflows Net Inflows
Growth 57.2 49.2 8.0
Income 57.8 48.3 9.5
Balanced 5.2 8 -2.8
Liquid/Money Mkt 97.1 87.6 9.5
Gilt 4.6 7.3 -2.7
Equity-linked Schemes 0.1 0.5 -0.4
(All figures in Rs bn)

The chart above unfolds the story of large-scale growth fund redemptions in the quarter Oct-Dec 2000. Panic among growth fund investors set in mainly due to volatility in equity markets in that period. As net asset values (NAVs) of growth funds crashed, investors made a rather hurried exit. That explains why despite inflows in excess of Rs 57 bn, net inflows were still a paltry Rs 8 bn.

Indian investors have shown little maturity in handling volatility in their mutual fund investments. Even a slight dip in equity markets has made them redeem their investments in panic, thereby defeating the very purpose of using the mutual fund avenue for investments. Investing in mutual funds means not having to track stock markets on a daily or even a weekly basis. It also means reposing your faith (along with your money) in the fund manager and letting him do his job. Growth fund investors must realise that their investments must be made with a time frame of at least 18-24 months, if they want to see some appreciation.

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