After a sharp spike in AUM between September 2019 and January 2020, the average AUM was almost flat in the month of February. Here is how the various mutual fund classes panned out in terms of flows during February 2020.
Debt Funds saw huge outflows at the short end
With Rs12.22 trillion of AUM, debt funds remain the largest category within mutual funds. Debt funds as a whole saw net outflows of Rs27,940cr in Feb-20. But the break-up was a lot more interesting. There was redemption to the tune of Rs45,300cr in liquid funds and overnight funds during the month. This has been largely attributed to liquidity shortfalls and last quarter payouts by corporate investors.
Interestingly, the sharply falling bond yields have enticed a lot of investors to longer duration funds. Apart from the short-end funds, credit risk funds and Gilt funds saw minor outflows. But, there were aggressive inflows into short and medium duration funds. Even corporate bond funds and Banking / PSU funds saw smart inflows. While Yes Bank could create some concerns, the markets don’t seem to be too perturbed. The heavy selling in short end funds appears to be more a case of treasury management.
Equity funds see robust inflows in February 2020
Equity funds with month-end AUM of Rs7.57 trillion, remain the second largest category within the mutual fund universe. Equity funds, as a whole saw net inflows of Rs10,796cr during the month of February 2020. But more surprising was the smart flows across most categories of equity funds. Like in Jan-20, the mid-cap and small-cap funds attracted net inflows to the tune of Rs3000cr.
In contrast to the previous month, large cap and multi cap funds also saw robust flows as investors tried to make the best of lower levels in the market indices. The risk-on approach was evident from the fact that even sectoral, thematic and focused funds saw inflows of nearly Rs3300cr in Feb-20. ELSS flows continued to be steady at Rs875cr and that could be attributed to the year-end tax planning. But the moral of the story appears to be that investors in equity funds are willing to commit money whenever they perceive value.
Hybrid funds were tepid but passive funds gain heft
Hybrid funds are still a significant part of the mutual funds universe with nearly Rs3.43 trillion in AUM. The hybrid segment saw net selling to the tune of Rs2006 crore with most of the key segments like aggressive hybrid, conservative hybrid and arbitrage funds seeing consistent outflows.
But the one sector that is really acquiring heft in the last one year is the passive segment (index funds and ETFs). Just to give you a perspective, in the last one year, the AUM of passive funds has grown from Rs117,000cr to Rs199,000cr; a growth of 70% in just one year. For Feb-20, these passive funds saw an inflow of Rs18,448cr, largely driven by inflows into index ETFs and CPSE ETFs. Even Gold ETFs saw inflows of Rs1483cr as the price of gold scaled news heights in the Indian markets.
SIPs have finally come to stay; Feb-20 only affirms it
If there is one story that has been reiterated time and again each month; it is the story of how SIP inflows have remained steady in the midst of market volatility.
Two things are evident from the above chart. Firstly, the monthly SIP has shown a growing tendency to shift to higher planes of collections and have managed to sustain the new plane. That is a clear case of aggression in SIP flows. Secondly, SIP flows have been largely immune to the market volatility. Despite the volatility that we saw in specific phases like late 2018 or early 2020, the SIP collections have continued to grow.
A broader perspective will reveal the story of how SIPs have grown in importance. For the month of February 2020, SIP folios grew by 5.65 lakh to 3.09 crore folios. A good deal of incremental flows is coming from tier-2 and tier-3 cities. The SIP AUM may have fallen marginally in February 2020 to Rs3,11,000cr but that is part of the volatility game. The good news is that investors are finally making the best of market volatility through the SIP route.