The retails flows during January-February 2016 were muted after returns turned negative despite strong structural factors.
ET Intelligence group: The bulging SIP book, which is expected to provide sustainable long-term domestic funds flow, may not be as sticky as widely believed, according to UBS research. The moderation in the SIP flows may have huge repercussions for valuation of small and midcap stocks. The survey by UBS shows that investors are open to stopping fresh investments or even redeeming SIPs due to various catalysts and the ‘sticky’ trend so far in SIPs may be vulnerable in case returns turn negative.
The SIP book in India has reached Rs 7,554 crore a month in June and July 2018 and accounted for the almost 78 per cent of the total inflows to the mutual funds, according to Association of Mutual Funds of India (AMFI).
Of the survey respondents — those who invest in or used to invest in equity mutual funds via SIPs — 55 per cent have redeemed either fully, partially or stopped new allocations.
Historically, the retail flows have followed historical returns. According to the data from Accord Fintech, there were no mutual fund schemes which failed to deliver returns in the two years to FY17. Much on the expected lines, nearly 60 per cent of SIP accounts were opened in the past three years and for them fear of losing money remains a key deterrent, according to UBS.
However, in the past one year, out of the total 124 schemes in the equity diversified SIP scheme, 23 have delivered negative returns. These schemes have total assets under management (AUM) of over Rs 41,000 crore. The midcap index is still positive on a yearly basis. The crucial factor to watch out is how retail investors will react if midcap returns turn negative.
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The retails flows during January-February 2016 were muted after returns turned negative despite strong structural factors. According to the UBS survey, the confidence in the stock market and buoyancy in the economy are two major factors for investment in mutual funds, which is followed by past returns and future expectation of mutual funds. For instance, retail investors did not participate for five years after the market crash of 2008.
Small and mid cap stocks may be affected more if the SIP flow slows down. The Nifty midcap index is trading at 1.8 times higher than the 10-year average. This reflects inherently higher growth expectations for small and midcap companies with an anticipated strong domestic fund flow.
