Retail Investors Redirecting Funds Away From Mutual Funds: SEBI’s Ajay Tyagi
Ajay Tyagi during a press conference in Mumbai. (Source: PTI)

Retail Investors Redirecting Funds Away From Mutual Funds: SEBI’s Ajay Tyagi

A surge in retail participation betting on a rebound from the pandemic-triggered selloff has started to wane. At least that’s what the chief of India’s securities market regulator indicated.

“We find that the share of institutional investors, corporate and partnership firms in the total turnover [of the NSE cash market] in this financial year has gone down by 8.3% and correspondingly, [cumulative] share of individuals & proprietary trading have gone up by 8.3% — a 6.6% increase in the share of individuals and 1.7% for prop trading,” Ajay Tyagi, chairman of the Securities and Exchange Board of India, said while addressing a webinar on ‘Behaviour of Securities Market’.

In the case of equity derivatives, the share of individuals and prop traders stood at 3.2% and 4%, respectively, he said.

India’s stock market has added nearly one crore demat accounts in the first 10 months of the ongoing financial year, taking the total tally of such accounts to five crores. The market had taken close to 28 months to move from three crore demat accounts to four crores, said Tyagi.

Retail participation jumped during the lockdowns worldwide as ‘Robinhood traders’, a reference to those trading through the U.S. discount brokerages, flocked the equity markets betting on a recovery after the worst selloff in more than a decade. India, too, witnessed a version of that and Indian brokerages were chasing new digitally savvy investors.

The increased participation, according to Tyagi, was evident from the number of demat accounts opened in the ongoing financial year.

Around 7 lakh demat accounts were opened each in April and May. That rose to a monthly average of 11 lakh between June and November and further to 15.4 lakh and 18 lakh in December 2020 and January 2021, respectively, SEBI chairman said.

Retail investors who were pumping in money through systemic investment plans have of late started withdrawing from such schemes, Tyagi said. Average inflows into SIPs stood at Rs 5,600 crore in the last fiscal. That was Rs 6,200-6,400 crore in April and May in the current fiscal but has been consistently falling. The last three months (November 2020-January 2021) saw the average SIP inflow at less than Rs 3,000 crore.

That, according to Tyagi, “could be indicative of a trend of individual investors using funds previously dedicated for SIPs to invest directly into the market or in other assets such as debt/real estate or even possibly holding out in cash waiting for market corrections”.

He also highlighted a trend change in monthly inflows into equity and growth schemes. While they witnessed monthly investments in the last three fiscals, investors pulled out from such plans in the ongoing financial year, barring in April and May.

In the last three months on 2020-21, monthly outflows from equity and growth schemes averaged at Rs 12,700 crore, with December witnessing the largest withdrawal of Rs 14,400 crore, Tyagi said.

Redemptions and declining inflows, according to him, have reduced the share of mutual funds in the NSE cash market to 5% from 7.5%, and in the NSE derivatives market from 4.3% to 3% in the financial year ending March 2021.

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