Hit by the recent volatility in the stock market, the Indian mutual funds sector saw high networth individuals (HNIs) pulling their money out of equity schemes of mutual funds in 2011-12. Due to lower-than-expected returns and merger of small mutual fund schemes, the number of folios of HNIs came down to 0.36 million at the end of March 2012 from 0.41 million a year ago, while the assets under management (AUM) dropped down to Rs. 37,000 from Rs. 41,000 crore during the same period.
HNI's are those who invest more than Rs. 5 lakh.
"Some investors tend to pull out money when the sentiments are weak and returns are belowexpectations," said V Ramesh, deputy CEO, Association of Mutual Funds in India.
"Many asset management companies (AMCs), which run mutual fund schemes, merged their schemes last year, which was also one of the major reasons for decline in the number of folios," said a senior official of a company that works as a registrar for AMCs. "Due to weak market condition, it became unviable for AMCs to run small schemes having small corpus."
Mutual fund industry witnessed around 45 mergers in 2011-12 compared to only 58 mergers between 2006 and 2010.
"In the last fiscal, when the equity market did not meet investor expectations, some HNIs shifted their money to other competing instruments such as tax-free bonds of the infrastructure companies and term deposit of banks offering guaranteed returns," said Debasish Mallick, MD and CEO, IDBI Asset Management.