Even as the rush of foreign funds into stock markets continues unabated, the strong collection in domestic mutual funds will drive the market forward.
So far this year, mutual funds have gathered Rs 19,176 crore (Rs 191.76 billion) of assets, while their purchases on the bourses have been flat at Rs 1,520 crore (Rs 15.2 billion). This month so far, mutual funds have invested about Rs 2,892 crore (Rs 28.92 billion), reversing the last three months' trend of negative flows.
Substantial dividend pay-outs and redemption pressure resulting from investors switching from existing schemes to new fund offers have conspired to keep fund-buying in check. But as fund flows, net of churning, are robust, mutual funds may have the potential to make huge purchases.
Usually, it take takes about three to four months for a fund of around Rs 2,000 crore (Rs 20 billion) to get invested in the market. Funds under Rs 1,000 crore (Rs 10 billion) take about two months to fully invest.
Leading fund managers said their new offerings that had collected money in the past couple of months had invested less than a third of their net assets so far, which meant big buying was yet to come in.
"Several fund managers, though sitting on a huge pile of cash, have been reluctant to invest aggressively, anticipating a market correction. But as the market keeps defying gravity, fund managers will have to catch up sooner than later," a fund manager with a leading fund house said.
Apart from the existing cash pile, four new fund offerings -- ABN Amro Future Leaders Fund, Sundaram Rural India Fund, Franklin India Equity Income Fund and Optimix Income Growth Fund - are currently open for subscription.
Of this, Franklin India Equity Growth Fund, being a blended Indian-cum-overseas fund, seeks to invest about 50 per cent of the assets in Indian equities. Optimix will allocate its fund collection in other mutual funds, which will then invest this money in the market.
The scorching pace at which the market is rising and with sustained marketing efforts by funds, more and more investors are turning to mutual funds.
"There has been a shift in the mindset of retail investors. Earlier, the retail investors were not convinced about mutual fund returns. But as net asset value of funds is rising, driven by buoyant markets, investors are now realising that mutual funds can deliver better returns," pointed out Sameer Kamdar, Mata Securities.
The collection from new funds this year has crossed over 60 per cent of last year's collection.
More investors are now investing through the mutual fund route than investing directly. "Mutual fund penetration also seems to be increasing across the country," said J Rajagopalan, Bluechip, a Mumbai-based fund distribution firm. Reliance Equity fund, which closed for subscription recently, mobilising a record Rs 5,750 crore (Rs 57.5 billion), had attracted nearly 900,000 investors.
Similarly, the SBI Bluechip, which collected Rs 2,850 crore (Rs 28.5 billion) last month, had received about 700,000 applications. "Earlier, mutual funds were focusing only on corporate clients but now they are shifting focus towards purely retail investors," Kamdar said.
All this indicates that the mutual fund party may continue, and that means some cushion for the stock market in the event of foreign investors turning their back on it.
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