Widely read:
The vigour with which money is flowing into closed-end equity funds has shown that mutual funds are still sold, and not bought in India. The intensive sales activity that is possible in such funds has resulted in net flows into equity fund actually turning positive after two years.
With the equity markets regaining their old highs since 2008, equity funds saw net inflows of nearly Rs. 2,500 crore between November 2013 and January 2014. According to AMFI, during this period around Rs 14,800 crores was invested while around 12300 crores was redeemed.
What's interesting is that the surge in new inflows was largely driven by closed-end funds. As many as twelve closed-end equity funds have been launched during this period. All told, these funds have together raised nearly Rs 2,000 crores. Thus, some 80 per cent of net inflows are accounted for by closed-end funds. Four more closed-end funds are in the pipeline.
Why are closed-end funds succeeding? The answer lies in the vastly more favorable economics that they offer for financing an aggressive sales effort. Since investors can't pull out the money from closed-end funds till its term ends, fund companies are able to pay a higher upfront commission to intermediaries for mobilizing investments. This is not possible in an open-end fund.
It is notable that this little reversal of inflows has come after a long period of gloom. Over five years, equity funds saw total inflows of Rs 2,46,691 crores and outflows of Rs 2,78,897 crores, resulting in a net redemption of Rs 32,206 crores. During this period, 2011 was the only positive year, seeing net inflows of Rs 6865 crore. In 2012, the net outflow was Rs 14,148 crores while in 2013 it was Rs 8,700 crores.
Some of the closed-end funds launched since November 2013 are ICICI Prudential US Value Fund Series II, Axis Small Cap Fund, Reliance Closed Ended Equity Series A, Reliance Closed Ended Equity Series B, Sundaram Select Micro Cap Series I and SBI Tax Advantage Series III All these schemes have a tenure of three or more than three years.
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