Wealthy investors load on equity mutual funds as market rallies

Well-heeled investors are taking the mutual fund route to benefit from the strong rally in the stock market this year.

While overall mutual fund folios, or accounts, have remained stagnant at about 39 million, those belonging to wealthy investors have seen an increase of 15 per cent during the first half of this financial year.

Interestingly, most high-networth individual accounts -- of those investing more than Rs 500,000 -- have been opened to invest in equity-based mutual fund schemes.

According to industry officials, there has been a significant turnaround in investor sentiment towards equity offerings and rich investors are loosening their purse strings to increase their stock market exposure.

This trend reflects in numbers as well, with equity schemes seeing inflows of over Rs 30,000 crore (Rs 300 billion) during April-September this year.

“The cash that was sitting idle or was under-allocated is finding its way into the equity asset class.

"We are seeing that money from other asset classes, such as fixed income, real estate and gold, is now moving to equities,” said Prateek Pant, head of wealth solutions, RBS.

The total addition in HNI folios in the first six months of this financial year has been 160,000 -- a fourth of these accounts have invested only in equity schemes.

According to data from the Association of Mutual Funds in India, the total HNI folio count stood at 122,400 at the end of September, up from 106,300 at the end of March.

HNI folios under equity-oriented schemes surged 46 per cent in the first half of the year. Meanwhile, HNI folios in gold exchange traded funds and gilt funds declined 20 per cent and 12 per cent, respectively.

Mutual funds invested nearly Rs 17,000 crore (Rs 170 billion) in the stock market between April and September, a period when the benchmark indices rallied nearly 20 per cent.

“The clear long-term view is that the rally in the equity market will continue and is sustainable,” said Pant.

The new account openings, industry players said, were not restricted to top cities.

Equity as an asset class was appealing to investors from smaller centres as well.

According to experts, while a majority of the HNIs preferred large-cap equity diversified funds, many also opted for mid-cap thematic equity funds.

Dominant themes among these funds were financials, infrastructure and transport & logistics, they said.

Closed-ended funds, which have been the flavour in the recent equity market rally, have also gained favour.

The HNI folio count under the liquid and money market fund categories has seen a jump of around 20 per cent, indicating a continued interest in the category, in spite of higher taxation on such products introduced in the Union Budget presented in July.

Analysts said the rise was mainly due to the many rollovers of fixed-maturity plans, the predominant product category within the liquid and money market funds.

“We are seeing some amount of rollovers in the industry by investors.

"But it is still very challenging and difficult to convince investors to opt for a rollover of FMPs.

"Going forward, we do not expect to see a huge rise in overall assets under management of the industry because the debt AUM would continue to be on the decline,” said Nilesh Sathe, chief executive officer, LIC Nomura Mutual Fund.