Equity funds receive record inflows in Mar-22

11 Apr 2022 , 08:36 AM

Mar-22 was not the best time for debt funds and that trend is obvious in quarter closings as treasury pressure builds up. But Mar-22 was about robust equity flows. NFO collections in Mar-22 stood at a robust Rs13,275cr, largely led by the SBI Multi-Cap fund. However, the NFO collections were still lower than the Aug-21 peak of Rs23,688cr. Equity fund flows in Mar-22 were driven by a combination of NFO collections and SIP inflows.

The overall MF AUM in Mar-22 was almost static at Rs37.57 trillion. The heavy selling in debt funds was more than compensated by the inflows into equity funds and passive funds as well as a positive returns on the Nifty in Mar-22. There were inflows across equity and passive funds while debt funds and hybrid funds saw outflows in Mar-22. The AUM has shown a steady growth over last 1 year, although this growth momentum has slowed.

Data Source: AMFI

The overall MF net outflows for Mar-22 stood at Rs(69,883)cr with heavy outflows of nearly Rs1.15 trillion in debt funds. The AUM mix as on 31-March was Income Funds (34.58%), equity funds (36.35%), hybrid funds (12.78%) and passive & solution funds (14.68%). The residual 1.62% were close-ended funds, where AUM was largely neutral for Mar-22.

This is the first time that the AUM of equity funds has crossed the AUM of debt funds, basically a combination of robust flows into equity funds and the support from favourable movement in equity indices. Overall AUM grew 19.54% yoy from Rs31.43 trillion in Mar-21 to Rs37.57 trillion in Mar-22. Now hybrids, solution funds and passive funds account for 27.45% of the total AUM, emerging as a very distinct alternative asset class.

Debt funds see heavy outflows in Mar-22

The month of Mar-22 marks the end of the quarter and the fiscal year, so advance and indirect tax payments put pressure on treasury holdings in debt funds. After debt fund outflows of Rs(8,274)cr in Feb-22, the total outflows in Mar-22 stood at a whopping Rs(114,824)cr. There was selling across debt categories. While short end funds saw treasury outflows, even long-end funds saw selling on account of hawkish yield expectations.

There were no debt fund categories with meaningful inflows in Mar-22. Hence we focus on the major outflows in the month from debt funds. During Mar-22, liquid funds saw outflows of Rs(44,604)cr, overnight funds Rs(12,852)cr, corporate bond funds Rs(11,967)cr, short duration funds saw Rs(9,055)cr, low duration funds Rs(8,947)cr, Banking & PSU funds Rs(7,998)cr, Floater funds Rs(7,338)cr, money market funds Rs(5,487)cr and ultra-short duration funds Rs(2,840)cr. Other categories of debt funds that also saw meaningful outflows included medium duration funds, medium to long duration funds, dynamic bonds and gilt funds. There was selling visible across short end and long end of the  yield curve.

Equity Funds witness record inflows of Rs28,464cr in Mar-22

Net inflows into equity funds touched an all-time high in Mar-22 at Rs28,464cr. The net equity fund inflows had previously scaled a high of Rs25,077cr in Dec-21, but even that record has been broken in Mar-22. In Mar-22, the flows into equity funds were largely driven by NFOs and SIP flows.

The NFO inflows were dominated by the SBI Multi-Cap Fund which accounted for a bulk of the NFO flows in Mar-22. Now for the real paradox. Despite geopolitical uncertainty, spike in oil prices and consistent FPI outflows; investors kept their faith in Indian equities. Each of the specific categories of equity funds saw positive flows in the month of Mar-22 as investors looked to hunt for value amidst the fall.

Let us look at specific inflows. During Mar-22, Multi-cap funds plus flexi-cap funds led the way with inflows of Rs12,244cr. Among other key categories, large & mid cap funds saw inflows of Rs3,165cr, Large Cap funds Rs3,052cr, ELSS funds Rs2,676cr, focused funds Rs2,310cr, mid-cap funds Rs2,193cr, small cap funds Rs1,695cr and value funds Rs770cr.

ELSS demand reflected last quarter demand for tax saving products. The growth in overall AUM of equity funds has also been triggered by a growth in folios with equity folios touching an all-time high level of 8.59cr at the close of Mar-22 out of total mutual fund folios of 12.95cr as of the close of fiscal FY22.

Hybrid fund flows negative, but passives make up in Mar-22

Hybrid funds saw outflows of Rs(3,604)cr in Mar-21 but that was more due to outflows in arbitrage funds, which are more of a treasury product. Among specific hybrid categories, Balanced Advantage Funds saw inflows of Rs1,719cr while aggressive hybrid funds saw net inflows of Rs1,156cr. However, arbitrage funds saw outflows of Rs(6,797)cr in Mar-22.

Passive fund flows in Mar-22 were again robust at Rs19,405 crore. The passive surge was led by index funds and index ETFs which saw inflows of Rs12,313cr while other ETF funds comprising of bond ETFs and silver ETFS saw inflows of Rs6,907cr. Other flows were not too significant in the month of Mar-22. The hybrid, passive and solution funds, put together, now account for 27.45% of overall MF AUM.

Robust SIP inflows amidst global uncertainty characterized Mar-22

While net inflows into SIPs crossed the magic mark of Rs10,000cr in Sep-21, it has sustained SIP flows above Rs11,000cr since Nov-21. For Feb-22, the SIP flows stood at Rs.11,438cr, marginally lower than the figure of Rs11,517cr in Jan-21, but Mar-22 has seen SIP flows bounce to an all-time high of Rs12,328cr. A lot of the surge in SIP flows in March 2022 has been driven by the surge in ELSS inflows, on the back of phased tax planning.

SIPs have, for quite some time, emerged as the driver of equity fund flows. Now, investors are not only particular about having SIP accounts, but they also do not rush to redeem the funds at the first sign of correction. After all, it is in volatile markets that rupee cost averaging best works in favour of SIPs. In a way, Indian mutual fund investors are finally coming of age. The benefit of rupee cost averaging is best experienced when you persist through the cycles of the market. Most investors appear to have learnt this lesson from the market recovery post-COVID, which made a lot of persistent SIP investors look very smart.