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Investors opt for gilt funds, bolt door on equity plans

B G Shirsat

Guess who turned out to be better judge of market trends - the savvy, pin striped fund managers or the ordinary guy who put money into these mutual funds?

Apparently, it is the latter who smelt the air of death around the 'new economy' counters and started pulling out from the equity funds.

So, even as the mutual fund sector as a whole reported a gross inflow of funds, equity funds actually reported a net outflow. The sell-out was prompted by investors pressing redemptions in equity schemes.

According to data compiled by the Association of Mutual Funds in India (Amfi), in the two quarters between July-December 2000, equity mutual funds were net sellers in the markets to the tune of Rs 2.87 billion and, between January-March 2001, they sold Rs 21.54 billion worth shares.

Between July 2000 and February 2001, while inflows aggregated at Rs 641.83 billion, outflows were placed at Rs 579.46 billion.

The fresh inflows into mutual funds were routed into the debt-oriented (or dominant) schemes. Data from the Securities and Exchange Board of India (Sebi) shows that net investments by MFs in debt markets between July-December was Rs 20.76 billion and between January-March 01, it was Rs 14.07 billion.

This implies investors pulled out investments from equity schemes and parked them in debt-oriented schemes. This also means that investors had probably read the rally in bond prices (contingent on a cut in interest rates) correctly, and well ahead of the markets.

The Amfi funds flow data shows that bank-sponsored funds were large-scale sellers in the equity markets. As against inflows of Rs 5.66 billion in July-September and Rs 4.06 billion in October-December, the outflows of these funds amounted to Rs 29.26 billion in July-September and 5.14 billion in October-December.

The Unit Trust of India was a net seller in the equity markets in this period. As against inflows of Rs 19.66 billion, UTI's outflows during October-December were at Rs 32.75 billion. During January-February 2001, the mutual fund's inflows were at Rs 19.79 billion compared to outflows of Rs 23.52 billion.

Funds in joint ventures - predominantly managed by foreign funds - seized the opportunity in declining prices of blue-chip stocks during last seven months. These funds had inflows of Rs 64.93 billion in July-September, Rs 83.18 billion in October-December and Rs 73.11 billion in January-February 01. As against this, the outflows were lower at Rs 49.40 billion, Rs 70.68 billion and Rs 57.97 billion, respectively.

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