‘Humpty Dumpty sat on a wall; Humpty Dumpty had a great fall’. It’s a nursery line that could well be the motto of mutual fund (MF) houses these days.

An inspection of corpuses of various MF schemes shows a drastic fall in their current assets under management (AUMs) vis-a-vis their initial collections. Of the nearly 300 equity schemes that were studied, more than 100 schemes witnessed a fall in AUMs, with nearly 53% of them witnessing over 50% drop.

Self-congratulatory ads at the end of every new fund offerings (NFO) notwithstanding, the fact remains that AUMs of many schemes have taken a sharp tumble. Sandesh Kirkire, CEO, Kotak Asset Management, states, “While NFOs have seen collections, net sales of equity funds for Q1 have not been impressive mainly because more than the fresh influx of funds, there has been a transfer of funds from the existing schemes to NFOs.”

While AUMs do not reflect the performance of a fund, it is often prominently cited in promotional materials to demonstrate the size of the fund and thereby lure new customers into the fold. Given the role that AUMs play in attracting new investors, ETIG specifically tracked the performance of all NFOs in the past three years. And no surprises for guessing that these are far worse off than their older siblings.

These new schemes are the ones that have the most fickle investors of all. Nearly 75% of the new schemes, which had commendable collections at the time of launch, have seen their corpuses fall like a pack of cards. So much so that, around 52% of them have shed over 50% of their weight (AUM) since inception. And if you think that most of the funds losing their AUM are probably those belonging to lesser known fund houses, then you are in for a surprise. (For the complete list, log on to www.etintelligence.com .)

What this indicates is that every time a new scheme is launched by a fund house, a section of investors dump some of their holdings in older schemes in which they are invested and reinvest the money in the new NFO. According to Dhirendra Kumar, CEO, Value Research Online, “A reasonable part of the NFO collections is new money, but about a third of it is the money moving from existing funds.” While this churn is often attributed to investors’ attitude for booking profits, what is often ignored is the fact that their decisions are mostly influenced by MF distributors, who are keen on pocketing heavy commissions, which they earn by selling NFOs.

Thus, one can conclude that while it may appear that the latest fund offerings have garnered a lot of money, in reality it is some other fund that may have lost almost the same sum through redemptions. In the light of these findings, it would seem that investors would be well advised to use performance rather than AUM as a criteria while choosing MFs.