MF AUM Crosses ₹40 Trillion as SIPs Boom

MF AUM Dominates Industry

For the month of November 2022, inflows into equity funds remained in positive as did flows into passive index funds and ETFs. However, the inflows appear to be favouring passive equity funds over active equity funds. The flows into debt funds were positive but hybrid funds once again saw net outflows in November 2022. In the hybrid funds category, it was the arbitrage funds that spoiled the show. However, for the second month in succession, the Balanced Advantage Funds (BAFs) showed negative net flows. Overall, the net inflows into mutual funds at Rs13,264 crore was almost the same as in October 2022.

There were 2 big stories in November 2022 in terms of Mutual Fund flows. Firstly, the SIP flows at Rs13,306 crore was an all-time record. Secondly, the total AUM of Indian mutual funds crossed Rs40 trillion for the first time in its history. Of course, with the rupee weakening to Rs82/$, the total AUM of Indian mutual funds still stays below the $500 billion mark. New fund offerings (NFOs) gathered steam in November 2022, as NFOs collected Rs7,199 crore, dominated by closed-ended FTPs, sectoral funds and index funds. 
 

Data Source AMFI

The overall AUM of the mutual fund industry crossed Rs40 trillion for the first time. Two key trends are evident.

1. If you compare AUM of active equity funds with that of active debt funds, there has been a reversal of roles in the last one year. Just a year back, active debt AUM was Rs14.52 trillion while active equity AUM was Rs12.78 trillion. As of November 2022, the active debt AUM has fallen to Rs12.57 trillion while the AUM of active equity funds surged to Rs15.58 trillion.
2. The last one year has been about the rise of alternate assets, with alternate assets AUM growing from Rs 9.42 trillion to Rs 11.93 trillion. Alternate assets include hybrid funds, passive funds and solution-oriented funds. There appears to be preference for passive funds as active fund managers struggle to outperform indices. Alternate funds are emerging as a distinct asset class.

Debt funds see marginal inflows in November 2022

After seeing net outflows in October 2022, debt funds have seen marginal net inflows in November 2022. Debt fund outflows are normally driven by two factors. Firstly, there is a lot of treasury withdrawal each quarter for payments of advance taxes and GST by corporates. Secondly, the rising interest rates had impacted yields on debt funds, but that is gradually changing with rates looking close to peaking.

Let us first look at the debt fund categories with negative flows in November 2022. Overnight Funds saw outflows of Rs31,928 crore, Ultra short-duration funds Rs2.882 crore, Short duration funds Rs1,914 crore and Banking & PSU Funds Rs1,864 crore. Smaller outflows were also visible in medium duration funds, medium to long duration funds, credit risk funds and floater funds.

We now turn to the category of debt funds that saw inflows in November 2022. Liquid Funds saw inflows of Rs34,276 crore in November 2022, Money market funds saw net inflows of Rs4,942 crore while Corporate bond funds saw net inflows of Rs3,466 crore. Other categories of debt funds that saw smaller inflows include Dynamic Bond Funds, Long Duration Funds and Gilt Funds.

Equity funds get a leg up from NFOs and SIPs

Equity fund inflows in November 2022 tapered further to just about Rs2,258 crore. While NFO flows were robust at Rs7,191 crore, the SIP flows touched a record level of Rs13,306 crore in November 2022. Which are the fund categories that led the inflows into equity funds? Sectoral Funds saw net inflows of Rs1,379 crore largely helped along the way by sectoral and thematic NFOs. Small-cap funds saw net inflows of Rs1,378 crore while the mid-cap funds saw inflows of Rs1,176 crore. Other equity fund categories that saw inflows in November 2022 included Large and Mid-Cap Funds and Contra / Value funds. 

Which are equity fund categories that saw net outflows in November 2022? The large-cap fund saw net outflows of Rs1,039 crore while flexi/multi-cap funds saw net outflows of Rs693 crore. Among other categories of equity funds that saw outflows were Dividend yield funds, focussed funds and ELSS (tax saving) funds.

Hybrid themes see outflows, but passive funds dominate

Hybrid funds saw outflows of Rs6,477 crore in November 2022. This is similar to the trend that we have seen in last few months. Two factors impacted hybrid fund flows. Firstly, NFOs have just started and we once again saw negative flows into Balanced Advantage Funds (BAFs). These funds had seen consistent inflows post the pandemic. The pressure was once again exerted by Arbitrage Funds that saw outflows of Rs4,075 crore in November while BAFs saw net outflows of Rs1,595 crore. Other hybrid categories like conservative hybrids, aggressive funds and equity savings funds also sold off. 
Passive funds were once again the highlight of November 2022, witnessing healthy inflows of Rs10,394 crore as investors looked for lower cost alpha. The passive surge was led by index funds at Rs8,602 crore while the equity & debt index ETFs saw inflows of Rs1,967 crore in November 2022. Gold Funds saw net outflows in the month of November 2022, which is not surprising amidst a strong dollar.

What emerges from the November 2022 mutual fund flows?

The story of mutual fund flows in November 2022 can be summed up as under.

1. Equity fund flows are getting decoupled from the equity market volatility and index levels. That can be largely attributed to the consistent flows from systematic investment plans (SIPs) which predominantly gravitate towards equity funds.
2. It is time for the debt funds in India to change the narrative and come up with innovative products. However, post-Templeton, there appears to be too much conservatism. That is not good news for debt fund investors and it is showing in the flows and debt fund AUM.
3. Finally, the big story is about the emergence of alternate classes like hybrids and passive funds which are now 29.6% of AUM. That is the big shift.