May-21 marked a decisive reiteration of equity fund flows with the inflows crossing Rs10,000cr after a long time. It also underlined the trend seen since March with Rs22,635cr infused into equity funds during this period. Debt fund flows may have been negative in May-21 but that is largely attributable to treasury management by corporate and institutional investors. However, the big news was overall AUM of Indian mutual funds scaling Rs33 trillion for the first time ever.
In May-21, the average AUM and the closing AUM touched record levels thanks to the 6.5% rally in the Nifty during the month. The closing AUM touched Rs33.06 trillion while the average AUM at close of May-21 scaled Rs33.00 trillion. The AUM mix on 31-May was Income Funds (43.11%), equity funds (31.12%), hybrid funds (11.29%), passive and solution oriented funds (11.03%). The residual 3.45% were close-ended funds, where AUM fell sharply in May due to Rs18,802cr redemptions in Fixed Term Plans. Overall AUM has grown 34.7% from Rs24.55 trillion to Rs33.06 trillion year-on-year.
Debt funds see sharp outflows in May-21 on treasury tweaks
After the massive inflows into debt funds in Apr-21, it was once again a month of outflows in May-21. April saw debt fund inflows of Rs100,903cr, but the month of May-21 saw net outflows of Rs44,512cr from debt funds. The fact that the outflows were largely concentrated at the short end of the yield curve indicates at corporate treasury tweaks by the corporate and institutional investors.
Here is a quick look at the specific outflows. Liquid funds saw massive net outflows of Rs45,447cr while overnight funds saw outflows of Rs11,573cr. Smaller outflows of a little over Rs1,000cr was seen in short duration funds, corporate bond funds and banking & PSU funds. Clearly, the concerns over valuation of Tier-2 bonds issued by banks continued to weigh on corporate bond funds and also on Banking & PSU funds.
Interestingly, there were a number of debt fund categories that saw sharp inflows too. Among the specific debt fund categories that witnessed inflows in May-21, low duration funds saw inflows of Rs7,823cr while money market funds saw inflows of Rs4,334cr. Among the other categories of debt funds that saw meaningful inflows included ultra-short duration funds at Rs2,924cr, medium duration, medium to long duration and dynamic bond funds. The essential theme appears to be risk-on
Equity funds saw hefty inflows in May-21 as conviction returned
If you thought that the equity fund inflows were a flash in the pan in Mar-21 and Apr-21, think again. May equity funds flows were not only positive but also the highest single-month flows into equity funds in the last one year. In fact, equity fund inflows were a decisive Rs.22,635cr in the last 3 months. This is in sharp contrast to the period between Jul-20 and Feb-21 when total net outflows from equity funds were Rs46,790cr. The net inflows into equity funds was also supported by robust SIP flows.
Let us focus on the specific categories of equity funds that saw inflows. In fact, barring ELSS funds, all other categories saw net inflows in May-21. Sectoral funds and thematic funds continue to attract interest. Flexi-cap funds saw net inflows of Rs3,085cr. Focused funds and thematic sector funds saw combined net inflows of Rs2,306cr in May-21 while mid-cap and small cap funds put together saw net inflows of Rs2,449cr. Even large/mid funds saw net inflows of Rs1,782cr in May-21.
Arbitrage funds, ETFs and FOFs quietly build market share
Hybrid funds actually continued on their overall April show with net inflows of Rs6,217cr in May-21. Of course, the balanced funds continue to see tepid flows, but dynamic funds saw net inflows of Rs1,363cr. However, it was arbitrage funds that made the cut with net inflows of Rs4,521cr in May-21 as it emerged as a viable alternative to liquid funds, where yields have been trending lower. The equity market moves also widened cash-futures arbitrage and made these arbitrage funds better propositions.
If hybrid funds saw robust inflows, passive funds were big stars in May-21. Debt ETFs saw inflows of Rs5,380cr while index funds saw inflows of Rs1,241cr. While gold ETF flows were tepid, International FOFs saw net inflows of Rs2,424cr. With net inflows of Rs15,549cr into hybrid and passive funds, this is virtually accelerating net inflows into Indian mutual funds.
Can SIPs cross the Rs10,000cr Rubicon?
If systematic investment plans (SIPs) saw inflows at Rs9,182cr in Mar-21 and Rs8,591cr in Apr-21; then May impressed with SIP flows of Rs8,819cr. SIPs already account for 39% of the total equity fund AUM and the next big narrative could be whether SIPs can decisively cross above Rs10,000cr per month. With a rise in SIP folios to 3.88cr and with SIP AUM rising to Rs467,366cr; the levers are poised for the next phase of SIP growth. That maybe of a lot more sustainable interest than volatile lump-sum flows into mutual funds.