Even as the equity market rallied and then turned volatile, retail investors have put money in gold and bonds

Investors have been chasing gold over equity during the last year, as gold prices have relentlessly climbed and equity shares went nowhere. According to data sourced from the Securities and Exchange Board of India (SEBI), assets under management (AUM) of gold Exchange Traded Funds (ETFs) increased to Rs482 crore as on March 2010 from Rs298 crore in September 2009. The number of investor accounts or folios increased to 1.42 lakh from 99,454 during the same period. Religare Mutual Fund launched its 'Religare Gold Exchange Traded Fund' in February which has mopped up Rs26.68 crore as on May 2010. But the percentage of gold ETFs to the total AUM still remains very low.
 
The retail share of traditional ETFs (excluding gold) has lost Rs12.90 crore, from Rs130 crore in September 2009 to Rs117 crore (as on March 2010). Benchmark Mutual Fund launched India's first ETF called Nifty BeES in 2002. The industry has seen the launch of 11 new ETFs since 2002.
 
Industry experts say that gold prices are not likely to see any further upside from here. "People did make some good money in gold ETFs. We have also seen good opportunities in debt funds. The upside in gold is not going to be too substantial from here," said Y Jawahar, VP-head, distribution, Mata Securities.
 
"It's not been helped by institutional investors but rather by retail investors. There is a general positive outlook on gold. Considering that gold prices are going up, it's a typical case of retail investors chasing gold," said Dhruva Raj Chatterji, research manager, iFAST Financial India Pvt Ltd.
 
The gold rush-though small in size-is significant when set against the sharply reduced flows into equity funds. Between September 2009-March 2010 investor accounts or folios have dropped by 2.56 lakh. The 30-share BSE Sensex is down 1% between September 2009 and March 2010. In May 2010, equity schemes reversed the negative trend when they recorded net inflows of Rs1,256 crore after continued redemptions for months together.
 
Balanced funds which provide a combination of debt and equity have recorded a 6% slump in their retail AUM at Rs8,969 crore as on March 2010 from Rs9,344 crore in September 2009. The retail investor folios in balanced funds dropped by 1.66 lakh between the same period. Balanced funds constituted only 3% of the total AUM as on May 2010. "People might be investing separately in debt and equity and it could be because of some profit-booking. There cannot be a clear reason behind it. The composition of balanced funds as an asset of the industry has been stationary all through the year," added Mr Chatterji. 

"Balanced funds traditionally had an Equity bias to take advantage of the Income Tax rate structures. However, the performance, positioning and marketing was and to some extent still is not up to the expectation of investors, and this could probably be the reason for the decline in AUM," said Jimmy A Patel, CEO, Quantum Mutual Fund. 
 
There is one other place retail investors have put in their money: debt funds. The retail AUM share of debt funds recorded a Rs4,279-crore jump in seven months while the investor accounts increased by 3.23 lakh.

 Global funds, which were launched with great fanfare during the bull market have performed poorly, leading investors to withdraw money from such schemes. The retail AUM share of these funds dropped Rs124 crore in seven months. There has been a decline of 25,206 investor accounts. Fortis China India Equity Fund, launched in late 2007, is down 8%. Similarly, Tata Indo-global Infrastructure Fund, launched in November 2007, has plunged 10% over two-and-a-half years. Moneylife had previously reported about the dismal performance of such schemes
(Read here: http://www.moneylife.in/article/5781.html) while predicting in 2007 that these were mere ploys by fund companies to attract cash. 

While the retail investor accounts under all categories of schemes have only fallen by 37,161, the AUM size of retail investors has seen a 7% jump, an increase of Rs10,771 crore since September 2009. The total retail investor AUM of all schemes stands at Rs1.63 lakh crore as on 31 March 2010. According to data available, the total number of investor accounts stood at 4.77 crore holding units worth Rs6.16 lakh crore as on March 2010. Individual investors contribute Rs2.45 lakh crore or 39.77% of total net assets in the mutual fund industry.

"The industry had always worked on the “push” strategy. Post the entry load removal, there is no price for guessing that distributors have gone all out and pushed competitive products over Mutual Funds. The Fund of Funds always had a tax disadvantage, and therefore it is likely that investors have encashed their Fund of Fund investments with an improvement in market sentiments," adds Mr Patel.