Nilesh Shah: Nilesh Shah explains why outflows from MFs continue even as SIPs are in limelight

There is a headline in Economic Times which says that the new SIP accounts are at a record high in January. It also says there are outflows within mutual funds. How would you relate both of these data points?
The headline is true for December, November and October as well. Month on month mutual funds have kept on adding new SIP accounts net of cancellation. From roughly about 3.11 crore accounts, we have now moved to 3.56 crore accounts. Every month, we are hitting new highs in terms of SIP registrations.

However, due to Covid-19, we have seen a drop in average SIP investment value. The peak SIP monthly contribution was about Rs 8,600 crore in March 2020. Now, it is roughly about Rs 8,050 crore. There are a couple of observations. Earlier, SIP was the domain of middle income to rich people. It is becoming an acceptable solution to the bottom of the pyramid also. Mutual funds are facilitating this by starting SIPs of Rs 100. Second, earlier SIP was more semi-urban and urban concentration. Now, it is spread into rural India also. So hopefully, SIP will be like Jan Nivesh Yojana for retail investors in India as well as Bharat.

Is there outflow pressure or is this the opportunity where FIIs are coming and may be mutual funds believe that it is time to encash?
I do not think the mutual fund industry is taking any cash calls. We do not take cash calls across most of our actively or passively managed funds. In March, local mutual funds and institutional investors bought heavily when FIIs were selling. Now with market appreciation, that value has almost doubled and it is quite natural that there will be some amount of profit booking. As mutual fund managers, we are not taking any cash call whatsoever other than in a balanced advantage fund or asset allocation fund where based on valuation, we move equity allocation but the redemption pressure is resulting into selling by mutual funds.

We are seeing this net outflow figure every month from the AMFI data. In the last month’s data, we saw even debt MF seeing redemption pressure. Is that on account of perhaps the whole end of the year kind of scenario where corporates redeem some of their debt funds?
Every quarter we have seen redemptions from the banking system and some corporates to square off their positions or to pay taxes and so on. The outflow for December and January has been reversed and now month to date in February, we have seen positive inflows in debt.

On the equity side, there are probably a couple of reasons why investors are redeeming; one, they had bought at the bottom in March, April, May and asset allocation prudence might require them to take off some profit. Some amount of selling might be attributable to moving into other asset classes like real estate as work from home environment has pushed all of us to buy real estate.

However, there are encouraging signs post Budget at least in the data which I am seeing in Kotak Mutual Fund. There are days when net equity sales are turning positive. I hope and pray this is true for industry as well and we see some turnaround in equity contributions in the days to come.

The SIP accounts have increased but at the same time, we are seeing a lot of direct trading by retail investors. What have you been observing over there? What have your clients been asking you and telling you?
There is a distinct trend within our clientele. We are a large country. There is no homogenous client base. We have a heterogenous clientele. Most retail investors have behaved with extreme maturity and throughout March, April, May, June, they were net buyers of equity. They have maintained prudent asset allocation and by and large, they have been long-term investors.

Even when they have gone directly into the equity market, they have bought quality stocks, they have bought with a longer term horizon rather than a speculative mindset. On the other hand, there are some HNIs and family offices which probably have taken profit out a little early and they are waiting with cash to invest into the market. Make sure the tendency is to invest on correction or invest on conviction. My feeling is that post Budget, they are getting conviction about longer term stories and which is where we have started seeing net equity sales turning positive for our fund.

Overall, investors have behaved with tremendous maturity. When FPIs were selling and bringing valuations cheaper, they were big buyers and now when valuations have become reasonable, they have taken some profit.