Thirteen Mutual Fund Trends visible in January 2023

Here is a collection of 13 interesting mutual fund trends visible in the mutual funds data released by AMFI for January 2023.

1. Over the last one year, the total assets under management (AUM) of mutual funds grew from Rs38.89 trillion to Rs40.80 trillion. So, in terms of average assets, the AUM is up 4.9% on a yoy basis. The AUM growth in equity funds and passive funds has been largely offset by AUM outflows from active debt funds between January 2022 and January 2023.
   
    
2. How has the scheme wise composition of assets under management changed in the last one year? Between January 2022 and January 2023, the AUM of active debt funds has fallen from 24.6% of overall AUM to just 19.3% of AUM. It has stabilized at that level over the last few months. Liquid fund AUM is up from 15.7% to 16.6% in last 1 year.
   
    
3. Equity funds have seen an improvement in active share across the board. For instance, the equity oriented schemes have seen their market share go up from 48.6% to 51% between January 2022 and January 2023. During the same period, the AUM of ETFs and FOFs is up from 11.2% to 13.1%.
   
    
4. In the last few years, we have seen the composition of MF AUM shifting away from institutions and towards individual investors. That trend got accentuated in 2022. Share of individual investors went up from 55% to 57.3% between January 2022 and January 2023. During the same period, the share of institutional clients in the AUM fell further from 45% to 42.7%.
   
    
5. How have individual and institutional investors allocated money to various asset classes as of January 2023? In active debt schemes, 58% of AUM was from institutions and 42% from individual. In equity schemes, institutions were 11% while individuals were 89%. In contrast, institutions were 86% of the AUM of liquid funds while individuals were 14%, which is not too surprising as that is more of a treasury product. What is perhaps disappointing is that individuals account for just about 10% of ETF/FOF AUM while institutions account for 90%. Clearly, individuals are not making the best of passive idea.
   
    
6. Let us look at this data differently. How does the composition of individual investors and institutional investors look like? Individuals have nearly 80% of their MF AUM in equity oriented funds, 14% in ETFs, 4% in liquid funds and just 2% in debt funds. Institutions have 33% of their allocation in liquid funds, 28% in ETFs/FOFs, 26% in debt funds and just about 13% in equity oriented funds.
   
    
7. Who contributed more to the AUM growth between January 2022 and January 2023? Was it individuals or institutions. Overall AUM in this period was up from Rs38.89 trillion to Rs40.80 trillion. This was largely driven by individual investor AUM growing from Rs21.40 trillion to Rs23.39 trillion (a growth of 9.3%). This can be attributed to a mix of NFOs, SIP flows and new MF folios being added. In contrast, the AUM of institutional investors fell from Rs17.49 trillion to Rs17.42 trillion between January 2022 and January 2023.
   
    
8. How does the mix of AUM look when classified into T-30 and B-30 cities. (T-30 represents the top 30 cities while the next rung is represented by B-30). As of January 2023, just about 17% of the AUM came from B-30 cities with 83% of the AUM still coming from the T-30 cities. But, how are the asset mix composed of in B-30 cities and in the T-30 cities?
   
    
9. Let us first talk about the B-30 cities as of January 2023. If you look at the B-30 AUM, 79% of the AUM was in equity oriented schemes while only the balance 21% were in non-equity schemes. If you go to the T-30 cities, 45% of AUM was in equity schemes and 55% was in non-equity schemes. This could be attributed to the fact that most of the large corporates and institutions are located in the T-30 cities, or at least the treasuries are managed out these T-30 cities.
   
    
10. The Direct Plan was permitted since 2013 to ensure that those who want to invest directly can avoid paying the marketing commissions on the fund. This tends to enhance returns. Nearly 45% of the overall mutual fund flows came in through the Direct Route. However, this can be misleading because this segment is dominated by the corporates and institutions. In the case of individuals, only 20% of retail investors and 25% of the HNIs invested through the Direct route. However, the percentage is as high as 90% for institutional investors and 77% for corporates. They have consistently adopted the direct route rather than the regular route and have been saving on commissions.
    
     
11. How have the folios (investor accounts unique to an AMC) grown over time in India. Folios are a much better reflection of the retail spread of mutual fund investments. In September 2014, the total number of mutual fund folios were at a low of 3.95 crore. Between September 2014 and January 2023, the total number of folios have grown 3.6 times to 14.28 crore folios. Post the COVID pandemic in March 2020, there has been a sharp surge in the number of mutual fund folios from 8.97 crore to 14.28 crore.
    
     
12. How is the mix of these folios made up of? Out of the 14.28 crore folios in mutual funds as of December 2023, retail individuals accounted for 91.1% of the folios, high net worth investors (HNIs) accounted for 8.2% of the folios while institutions accounted for just about 0.7% of the overall folios of mutual funds. Out of the total folios, 67.5% are in equity oriented funds, 12.5% of the folios are in ETFs / FOFs, 8.5% folios in hybrid funds and the balance is distributed across debt funds, liquid funds, solution funds and closed ended funds.
    
     
13. Finally, the data on mutual funds breaks a very popular myth that retail investors tend to take a very short term view of mutual funds. For instance, you would be surprised to know that 44.4% of the equity assets of mutual funds stayed invested for more than 2 years while 72% of the equity fund investments stayed invested for more than 1 year. It is still better if you look at retail investors. More than 57% of the equity assets were held by retail investors for at least 2 years while over 80% of equity fund investments by these retail investors for at least one year. That surely dispels the myth that retail investors take a very myopic view of equity fund investing.

So, what are the broad takeaways. Firstly, equity fund investors are still largely equity oriented but are not making the best of passive options. Secondly, equity fund investors are actually long term investors and are patient enough to hold on. The mutual fund landscape in India is changing, and it is changing for the better.