55% retail investors stay put in equity funds for over 2 yrs

Market participants say this is because newcomers are seeing long-term benefits MFS offer

Investors are increasingly staying invested for longer in equity schemes thanks to the good returns they generated and the increasing acceptance of mutual funds as long-term products. As of the June quarter, over 55.6 per cent of retail investors stayed invested in equity funds for more than two years, compared with 48.7 per cent in March 2020.

Data from the Association of Mutual Funds in India (Amfi) shows that the figure was 55.4 per cent in December 2020. According to the data, of the total retail equity assets of ~7.12 trillion, ~3.96 trillion has remained invested for over two years.

However, even as a majority of retail investors have stuck around for the longer term, the trend has been different for high networth individuals (HNI). According to Amfi data, 47 per cent of HNIS had held on to their equity scheme investments for over two years as of June 2021.

Market participants say the reason more retail investors have stayed put for longer in equity schemes is because many newcomers have started investing in mutual funds keeping in view the longterm benefits they offer.

Sirshendu Basu, head products at IDFC MF, says investors now appreciate the fact that patience is very well rewarded. Time spent in the equity market is more important than timing the entry.

The returns generated by equity funds over the past year is also a factor that has convinced investors to stick around for longer. Largecap funds have generated average returns of around 45.88 per cent over the last year, while mid- and small-cap funds have provided returns of 64.27 per cent and 88.87 per cent, respectively.

Ashutosh Bishnoi, managing director and chief executive officer at Mahindra Manulife MF, says: “We have seen a large number of investors who come through systematic investment plans (SIPS) where they prefer having a disciplined investment approach. Their holding period is now more than five years, which used to be just two years a few years back.”

In July, new SIP registrations stood around 2.38 million — the highest-ever recorded by the MF industry. Investments through SIPS also increased in July, compared to June. The SIP contribution in July stood at ~9,609 crore, against ~9,155 crore in June, and the AUM rose to ~5.03 trillion.

In the current financial year, around 7.46 million new SIPS accounts have been opened in the mutual fund industry. “As long as SIPS continue to grow, I don’t think there will be sharp redemptions, even if there is some correction in the market,” added Bishnoi.

However, there are some industry players who still feel that investors continue to invest as long as they get positive returns and their behavior will be tested when there is a 10-15 per cent fall in the market.