Hybrid funds and Passive funds gather steam in Oct-21

The overall AUM surge in Oct-21 was strong as it moved from Rs36.74 trillion to Rs37.33 trillion on a closing AUM basis. While debt funds also saw inflow, the net inflows into hybrids and passives actually trumped traditional equity fund flows.

Nov 12, 2021 08:11 IST India Infoline News Service

Compared to the previous 2 months, NFOs were relatively tepid in October. In the months of July and August, NFOs accounted for Rs40,000cr of net inflows, driven by multi-cap funds and balanced advantage fund. In comparison, the NFO flows at Rs8,283cr was relatively lower in Sep-21. In Oct-21, NFOs contributed Rs7,734cr largely dominated by the robust response to the NJ Balanced Advantage Fund NFO, which collected Rs5,216 crore.

The overall AUM surge in Oct-21 was strong as it moved from Rs36.74 trillion to Rs37.33 trillion on a closing AUM basis. While debt funds also saw inflow, the net inflows into hybrids and passives actually trumped traditional equity fund flows. Here is a quick look at the AUM-cum-NFO chart as of Oct-21.

Data Source: AMFI

The AUM accretion via net inflows in Oct-21 was Rs38,275cr with net inflows across all the four major segments viz. debt funds, equity funds, hybrid funds and passive funds. The AUM mix as on 31-Oct was Income Funds (38.34%), equity funds (34.73%), hybrid funds (12.39%) and passive & solution funds (12.82%). The residual 1.72% were close-ended funds, where AUM fell in Oct-21 due to Rs1,080cr redemptions from FTPs. Overall AUM grew 32.24% from Rs28.23 trillion to Rs37.33 trillion year-on-year. Passive and hybrid funds gained AUM share in Oct-21 at the cost of debt funds and equity funds. The gap between the share of debt funds and equity funds has narrowed considerably, but the real story is the magnificent emergence of hybrid funds and passive funds as distinct asset classes in India.

Debt funds see decent inflows in Oct-21, but lose market share

The month of October has seen a sharp surge in inflows into floating rate funds and this trend has only got accentuated in the last few months. Clearly, that is a bet on spike in yields and the recent spike in US inflation to 6.2% will only underline that risk. The month of Oct-21 saw overall inflows into debt funds to the tune of Rs12,984cr. First the category outflows! Liquid Funds saw outflows of Rs10,200cr, short duration funds saw outflows of Rs2,666cr and Banking & PSU funds saw outflows of Rs1,252cr in Oct-21.

There were a number of debt fund categories that saw sharp inflows in Oct-21. Among the specific debt fund categories, Overnight Funds saw inflows of Rs6,337cr, floater funds Rs5,050cr and ultra-short duration funds Rs4,512cr. Among the other major instances of inflows in Oct-21, low duration funds saw inflows of Rs4,203cr, money market funds Rs3,769cr and Dynamic Bond Funds Rs1,812cr.

Equity Fund inflows were stable in Oct-21 despite little NFO support

Net inflows into equity funds were stable for Oct-21 at Rs5,215cr. In terms of outflows, the only categories of equity funds that saw outflows were ELSS funds and value/contra funds but their combined outflows in the month was just about Rs840cr

Data Source: AMFI

Let us turn to the inflows into equity funds in Oct-21. The combination of multi-cap funds and flex-cap funds saw overall inflows of Rs1,460cr. Among other key categories, Sector Funds saw inflows of Rs1,734cr, Large Cap funds Rs747cr and large & mid-cap funds Rs643cr. Other inflows were much smaller in the overall picture. Equity funds saw cumulative net inflows of Rs73,766cr in the 8 months since Mar-21.

Hybrid funds were the star of Oct-21

Net flows into hybrid funds remained very strong at Rs10,437 crore. However, there were two contrary trends. The allure of balanced advantage funds continued after the SBI NFO as this category saw inflows of Rs11,219cr in Oct-21. This also included the Rs5,216cr that NJ Balanced Advantage Fund collected as part of its inaugural NFO. However, due to treasury considerations and consistently falling yields, the arbitrage funds saw outflows of Rs2,344cr. Among other hybrid categories, equity savings funds and conservative hybrids saw inflows.

The big daddy of mutual fund inflows in Oct-21 was the passive category getting Rs10,759cr. Index funds saw inflows of Rs3,514cr while Debt ETFs saw inflows of a hefty Rs5,427cr. The other categories of gold ETFs and FOFs also attracted positive flows of Rs304cr and Rs1,514cr respectively. The hybrid and passive funds put together account for 25.21% of overall AUM and are emerging as a distinct asset class in the mutual fund palate.

Is Rs10,000cr SIP the new normal?

In Sep-21 the magic mark was finally crossed with net SIP flows of Rs10,351cr. That trend has been accentuated in Oct-19 with net SIP flows of Rs10,519cr, marking the second consecutive month the SIP flows have stayed above the Rs10,000cr mark. SIPs are material because they represent the large-scale retail participation in equity and related funds. Above all, SIPs are also representative of the long term commitment of MF investors.

This is the momentum that took a really long time to build. The mutual funds and AMFI must target Rs20,000 crore in monthly SIP flows, SIP folios of 10cr and SIP AUM at 80% of equity AUM. In the midst of the current market chaos, the one story that stands out is that SIP flows are steadily growing.

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