June 2022 quarter repeats debt fund selling story

1 Aug 2022 , 09:47 AM

The quarterly mutual fund flow data for June 2022 quarter published by AMFI shows strong positive inflows across equity and passive fund assets, moderate flows into hybrid assets and strong selling in debt funds. This is a replica of the trend seen in March 2022 quarter. In fact, June 2022 marks the third consecutive quarter that debt fund flows have been negative, clearly showing the pressure of higher bond yields and diminishing returns. The June 2022 quarter once again showed perceptible bias in favour of equity funds and alternate asset funds; while debt funds faced pressure amidst central banks hawkishness.

As of the close of June 2022 quarter, net AUM of Indian mutual funds stood at Rs35.64 trillion, a loss of -5.14% over the March 2022 quarter. Although the flows into equity funds and passive funds were clearly positive, these flow gains were neutralized by the equity market correction which resulted in value depletion. The equity fund AUM accretion in the June 2022 quarter was triggered by net inflows, but the real story was how the passive flows in the quarter caught up with active funds as fund managers struggled to beat the market. Here is the story of mutual fund AUM in the June 2022 quarter and how the flows into specific categories of mutual funds panned out.

How debt fund flows panned out in June 2022 quarter?

Flows into Debt Funds in the Jun-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Jun-22
Rs23.83 trillion	Rs24.53 trillion	Rs(0.70) trillion	Rs12.34 trillion

Indian debt funds saw net redemptions of Rs21,160 crore in December 2021 quarter, which deepened to Rs118,010 crore in the March 2022 quarter. The net outflows for June 2022 quarter was only slightly lower than the previous quarter at Rs70,213 crore. Let us look at the key flow drivers and start with inflows? Only gilt funds with 10 year duration saw inflows of Rs706 crore while long duration funds and gilt funds saw smaller inflows. All other categories of debt funds saw strong outflows in the quarter.

The June 2022 quarter saga of debt fund flows veered towards broad-based redemptions. Short Duration Funds saw outflows of (Rs19,704 crore), Corporate Bond funds (Rs13,785 crore), Floater funds (Rs10,845 crore), Banking & PSU funds (Rs8,098 crore), Money Market Funds (Rs6531 crore), Medium Duration Funds (Rs3,814 crore) and Dynamic Bond Funds (Rs3,349 crore). There were other redemption candidates like medium to long duration funds and credit risk funds, but they were relatively smaller.

Total AUM of all debt funds at the close of the June 2022 quarter stood at Rs12.34 trillion with its overall share of MF AUM higher by 5 basis points compared to March 2022 quarter at 34.63%. Despite the sharp redemptions, the debt fund share has gone up sequentially but that is only because equity funds have seen their market share fall due to index correction.

How equity fund flows panned out in June 2022 quarter?

Flows into Equity Funds in the Jun-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Jun-22
Rs91,773cr	Rs41,855cr	Rs49,918cr	Rs12.86 trillion

After robust inflows of Rs50,363 crore in the June quarter and Rs41,912 crore in the December quarter, the June 2022 quarter saw net inflows of Rs49,918 crore. What is of interest is that not a single category of equity funds witnessed negative flows in June 2022 quarter. Despite the absence of NFOs, the regular flow of SIPs kept the flows steady. The June 2022 quarter, incidentally, is the third straight quarter when not a single equity fund category showed negative flows.

The positive contributors to equity funds were a lot more affirmative. Flexi-Cap funds + Multi-Cap funds saw positive flows of Rs10,735 crore. In addition, there were positive flows into sectoral & thematic funds at Rs7,813 crore, large & mid cap funds Rs6,458 crore, large cap funds Rs5,875 crore, mid cap funds Rs5,233 crore, small cap funds Rs5,102 crore, focused funds Rs4,018 crore and contra funds Rs2,750 crore. Interestingly, the ELSS category also saw inflows in the June 2022 quarter.

The total AUM of equity funds at the end of the June 2022 quarter stood at Rs12.34 trillion reducing its share by 27 bps over March 2022 quarter to 36.08%. The AUM share of equity funds has come down sequentially; largely due to the index depletion that we saw in the June 2022 quarter. However, equity funds have maintained the share lead over debt funds.

How hybrid fund flows panned out in June 2022 quarter?

Flows into Hybrid Funds in the Jun-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Jun-22
Rs49,750cr	Rs39,666cr	Rs10,084cr	Rs4.71 trillion

In June 2022 quarter, hybrid fund inflows nearly doubled over the March quarter at Rs10,084 crore. However, it could have been much better if NFOs had continued in the quarter. This resulted in the absence of incremental NFO flows into the Balanced Advantage Funds (BAF). However, BAFs still dominated June 2022 quarter with inflows of Rs5,590 crore followed by equity aggressive hybrid funds at Rs3,212 crore, equity savings funds at Rs657 crore and multi asset funds Rs594 crore. However, Arbitrage Funds saw net outflows of Rs493 crore in June 2022 quarter, more due to treasury considerations. Total AUM of all hybrid funds at the end of June 2022 quarter stood at Rs4.71 trillion, growing its AUM market share by 53 bps to 13.21% of total mutual fund AUM.

How passive fund flows panned out in June 2022 quarter?

Flows into Passive Funds in the Jun-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Jun-22
Rs58,196cr	Rs16,969cr	Rs41,227cr	Rs5.21 trillion

Passive funds had another fantastic June 2022 quarter with net inflow of Rs41,227 crore, almost at par with the robust March 2022 quarter. There was traction across passive categories. Index Funds/ETFs saw inflows of Rs20,077 crore and other ETFs Rs19,086 crore. Gold funds saw smaller inflows of Rs1,439 crore while FOFs saw inflows of Rs624 crore. Passive funds now contribute 14.62% of total MF AUM; 73 basis points higher than March 2022 quarter.

The big story emanating from the June 2022 quarter mutual funds data, and this is the story of the last few quarters, is that investors are now thinking beyond traditional active equity and active debt funds. If you add up the hybrid funds, solution oriented funds and the passive funds, these have a combined market share of 28.62% of the AUM. Apart from active equities and active debt, these have emerged as the 3rd big asset class for investors.