AUM of Mutual Funds touches Rs 41.5 trillion

What is the quiet shift in mutual funds?

Mutual fund AUM has grown at a frenetic pace over the last 10 years as have the number of mutual fund folios. Now, folios are the accounts that are unique to each AMCs and are a good barometer of retail reach. While the AUM of mutual funds touched Rs41.5 trillion ($505 billion) in April 2023, the number of mutual fund folios have grown from 3.95 crore in 2014 to 14.64 crore folios today. Folios, in short, have grown more than 3.5 times in the last 9 years and that has been the big driving force. However, there are other shifts too. For instance, people are increasingly preferring the SIP approach. Also, there is a shift out of active funds to passive funds as index funds and index ETFs take off in a big way.

How investors allocated to mutual funds?

There is no disputing the growth in AUM and folios are up, but how much. Between 2014 and 2023, the number of folios grew from 3.95 crore to 14.64 crore while mutual funds AUM grew from Rs9.45 trillion to Rs41.50 trillion. But the risk with the macro picture is that it glosses over the undercurrents of mutual fund flows. Here are how investors are allocating to mutual funds as of April 2023. 

In the last one year, mutual fund AUM has shifted from debt to equity for obvious reasons, although April 2023 did see debt funds bounce back with Rs1.07 trillion of inflows. Between April 2022 and April 2023, equity oriented funds AUM increased from 49.6% to 50.9%. During the same period, share of active longer term debt funds fell from 22.4% to 20.5% while liquid funds fell from 16.2% to 15.6%. However, passives have grown AUM further from 11.8% to 13.0% share over last year.

The folios were always about individuals but now individual investors are also playing a more significant role in the AUM. Look at the numbers. Between April 2022 and April 2023, the share of individuals in overall AUM was up from 55.4% to 57.6%, while the share of institutions is down correspondingly. However, the mix is diverse. They own just 43% in debt schemes and 11% in money market schemes. However, individuals account for 89% of equity fund AUM, but just 11% of ETF / FOF AUM. They are still slow on passive buying

Over last one year, the institutional asset growth was 1.59%, while individual assets grew by 10.96%. Clearly, individuals are playing a bigger role in mutual fund growth.

Is the mutual fund family widening?

That is the million dollar question. Widening base of mutual fund is best judged by the growth in folios. It is the closest proxy for retail spread. If you look at the total mutual fund folios of 14.64 crore folios, retail investors accounted for 92.8% of total folios, HNIs 6.6% and institutions a mere 0.6%. The story changes in debt funds; where individual share of folios is just 66.4% and HNIs 31.3%.

But is the family of folios widening? The answer is an emphatic yes. As we stated earlier, the total number of folios of mutual fund shad fallen sharply from 4.76 crore to 3.95 crore between the years 2009 and 2014. Since 2014, the folios have picked up from 3.95 crore to 14.64 crore; or a growth of 271%. That has been largely accounted for by individuals, largely through SIPs and the vast crowd of millennials who have thronged into mutual funds.

Are retail investors serious players in the mutual fund space? That would depend on two factors viz. average ticket size of retail investors and the holding period of individual investors on an average. Let us look at ticket size first. In April 2023, the average ticket size of retail investors in equity funds stands at Rs0.68 lakhs. But there is something more interesting in the data. We normally tend to believe that retail investors tend to be myopic investors, but that is not the case. As of April 2023, retail investors have nearly 56.5% of their equity fund investments for a period of more than 2 years and 75% of the retail assets for at least 1 year. They are surely getting a lot more patient with their investments.

Mutual fund cult is spreading to small towns too

Smaller towns are looking beyond traditional asset classes like real estate and gold and adding equity to their list of preferred assets. Some interesting data points cropped up in April 2023. In mutual fund parlance, T30 (top-30) cities representing the largest cities while the B30 are the cities beyond top-30. As of date, B30 cities account for 17% of overall AUM of mutual funds. This is all the more appreciable since a lot of AUM of T-30 cities comes from institutional and corporate holdings. 

Interestingly, the smaller B-30 cities had a much higher preference for equity assets as compared to T30 cities. If you look at the individual asset mix as of the close of April 2023, 26% of individual assets are located in B30 cities and 74% in T30 cities. That is much higher than their overall share indicating that people in B30 cities are becoming more investment savvy and SIPs are starting to play a very critical role. However, retail investors continue to prefer regular plans over direct plans with just 15% of retail equity AUM coming through the direct route. For now, it does look like the HNIs and the institutions are getting much better leverage from the direct plans. But, retail investors in MFs are surely coming of age.

Content Source: AMFI