Debt funds are back with a bang
In the last two months of April and May 2023, the net flows into the debt fund have been to the tune of Rs179,000 crore. That is the kind of flow into debt funds that have not been seen in a long time now. However, 3 things changed for debt funds in the last two months. Firstly, it was about the TINA (there is no alternative) factor. After all, investors still need the conservative comfort of debt. How long could they continue to risk money in equities? Secondly, the RBI hint of flat to lower rates also made the funds prefer debt over equity. Lastly, it was about the urgency to lock into higher rates. Rates on bonds are substantially higher on the back of a series of rate hikes by the RBI. The result was record-breaking flows into debt funds in the last two months, compared to negative flows into debt funds in FY23
Table of Content
How debt fund flows turned around in FY24
Here is a look at how monthly flows across fund categories panned out over the last one year. The stand-out flow story has been highlighted.
| Month | Debt Fund Flows (Rs cr) | Equity Fund Flows (Rs cr) | Hybrid Fund Flows (Rs cr) | Passive Fund Flows (Rs cr) | Total MF Flows (Rs cr) |
| May-22 | (32,722) | 18,529 | 5,293 | 12,229 | (7,533) |
| Jun-22 | (92,248) | 15,498 | (2,142) | 13,110 | (69,853) |
| Jul-22 | 4,930 | 8,898 | (5,035) | 14,271 | 23,605 |
| Aug-22 | 49,164 | 6,120 | (6,509) | 15,069 | 65,077 |
| Sep-22 | (65,372) | 14,100 | (2,475) | 13,623 | (41,404) |
| Oct-22 | (2,818) | 9,390 | (2,647) | 10,261 | 14,047 |
| Nov-22 | 3,669 | 2,258 | (6,385) | 10,394 | 13,264 |
| Dec-22 | (21,947) | 7,303 | 2,418 | 15,398 | 4,491 |
| Jan-23 | (10,316) | 12,547 | 4,681 | 3,955 | 11,373 |
| Feb-23 | (13,815) | 15,686 | 630 | 6,488 | 9,575 |
| Mar-23 | (56,884) | 20,534 | (12,148) | 26,804 | (19,264) |
| Apr-23 | 106,677 | 6,480 | 3,511 | 6,945 | 121,435 |
| May-23 | 45,959 | 3,240 | 6,193 | 4,487 | 57,420 |
Data Source: AMFI
May 2023 marked the second month in a row when debt fund flows dominated mutual fund flows. It almost appears like the net flows into debt funds have dwarfed other categories in the last two months. Debt funds coming back with a bang, appears to be and outcome of the reset in institutional allocation, on the back of rates looking very attractive to lock in at this juncture. Normally, equity funds get bulk of their flows from SIPs and NFOs. In the latest month, the NFOs were virtually absent, impacting equity fund flows in a big way.
Debt funds are even improving their market share
In the last one year, the debt funds had lost market share (share of AUM) to the equity, hybrid, and the passive funds. That appears to have changed in the last 2 months. If you look at the data flows of category wise AUM for last 6 months, you can see the difference.
| Month | Debt AUM (Rs trillion) | Equity AUM (Rs trillion) | Alternate AUM (Rs trillion) | Total AUM (Rs trillion) |
| Dec-22 | 12.42 | 15.25 | 11.92 | 39.89 |
| Jan-23 | 12.38 | 15.06 | 11.87 | 39.62 |
| Feb-23 | 12.30 | 15.02 | 11.83 | 39.46 |
| Mar-23 | 11.82 | 15.17 | 12.09 | 39.42 |
| Apr-23 | 12.99 | 15.85 | 12.47 | 41.62 |
| May-23 | 13.49 | 16.57 | 12.85 | 43.20 |
Data Source AMFI
In the table above, if you compare March 2022 and May 2022, the most impressive growth in AUM comes from debt funds. This is despite the fact that debt fund AUM does not get the value accretion benefit, which has been a key contributor of AUM of equity and index funds. To get a more granular picture, let us look at how the share of AUMs of debt funds and other funds changed in the last 3 months.
| Month | Active Debt Funds | Active Equity Funds | Hybrid Funds | Passive Funds | Solution Funds | Close-ended Funds |
| Mar-23 | 29.98% | 38.48% | 12.15% | 17.69% | 0.82% | 0.84% |
| Apr-23 | 31.21% | 38.07% | 11.88% | 17.27% | 0.81% | 0.77% |
| May-23 | 31.23% | 38.34% | 11.80% | 17.14% | 0.81% | 0.69% |
In the last 3 months, active equity fund shave seen their AUM (assets under management) share constant. On the other hand, the passive funds and the hybrid funds have actually lost AUM share. Who is the surprising gainer. Clearly, debt funds have seen their share of AUM go up from 29.98% to 31.23% between March and May 2023. That is where the market share gain is really manifesting. Of course, the catch in the entire debt fund flow story is that most of the flows are still happening into funds at the short end of the yield curve.
Record SIP flows, supported by SIP folio growth
For the month of May 2023, flows into systematic investment plans (SIP) stood at an all-time high level of Rs14,749 crore; nearly 7.5% higher than the previous month. More than a single month data flows, the real data point of importance in SIP is the average monthly SIP ticket (AMST). The table below captures how the AMST has grown over the last 7 years showing a consistent uptrend. It must be noted that the AMST for FY24 only comprise of two months, but that would give you a rough picture of how the SIP flows are building momentum on a consistent basis.
| Financial Year | Average Monthly SIP Ticket (AMST) |
| FY16-17 | Rs3,660 crore |
| FY17-18 | Rs5,600 crore |
| FY18-19 | Rs7,725 crore |
| FY19-20 | Rs8,340 crore |
| FY20-21 | Rs8,007 crore |
| FY21-22 | Rs10,381 crore |
| FY22-23 | Rs12,998 crore |
| FY23-24 # | Rs14,239 crore |
Data Source: AMFI (# - 2 month data annualized)
However, it is not just the SIP amount that is growing, but even the SIP folios (a better gauge of retail participation) that has also grow. For example, number of SIP folios increased from 642.34 lakhs in April 2023 to 652.85 lakhs in May 2023 while the SIP AUM increased from Rs717,176 crore to Rs752,944 in the same period. The one concern that remains is the rising SIP stoppage ratio, which stands elevated at 61.9% in FY24. Once that also tapers, the overall mutual fund narrative looks all set to boom.
Content Source: AMFI
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