The overall AUM saw robust growth on a continuous basis since Mar-20. The new fund offerings (NFOs) have been significant in only 4 out of the last 13 months. Let us first focus on debt fund flows.
Debt fund inflows taper in Dec-20, but stay positive
If you consider debt fund inflows of Rs110,500cr in Oct-20 and Rs44,984cr in Nov-20; then the Dec-20 inflows of Rs13,863cr looks relatively humble. However, the takeaway is that corporates and HNI investors in debt funds are continuing to remain risk-on. There are two reasons for the same. Firstly, RBI has given a tacit commitment on bank rates remaining subdued and liquidity abundant. That reduces the risk of bond funds. Secondly, institutional investors are more willing to take risk in debt funds with the economic scenario and corporate numbers looking encouraging.
Let us turn to the colour of flows into specific categories of debt funds. Unlike October and November, the debt fund flows in Dec-20 was mixed. For example, money market funds saw outflows of Rs11,896cr while ultra short duration funds saw outflows of Rs5,102cr. Outflows in gilt funds were more subdued at Rs1,803 crore.
Overnight funds and liquid funds saw combined inflows of Rs12,503cr, while corporate bond funds maintained the tempo with inflows of Rs8,610cr. Floater funds were one more category where nearly Rs3,513 crore was infused in Dec-20
Overall debt funds net inflows of Rs13,863cr was smaller than the previous two months, but that was anticipated as the quarterly advance tax and GST payments put pressure on liquidity. That should hopefully change in Jan-21.
No encouragement in equity fund flows in Dec-20
Dec-20 marks the sixth consecutive month of net redemptions in equity funds. Since Jul-20, Rs33,000cr moved out of equity funds. That appears to be a logical move to book profits at higher levels as the liquidity-driven rally in equities has confounded and intimidated equity fund investors. This consistent redemption in equity funds is also the reason why domestic financial institutions have been net sellers in stocks on most days.
Let us now turn to the specific equity fund categories. There was net redemption in most categories of equity funds during Dec-20. Large cap funds saw outflows to the tune of Rs3,876cr while multi-cap funds saw outflows of Rs3,541cr. Among other categories, there were outflows to the tune of Rs2,925cr from large and mid-cap funds and Rs2,737cr from value and contra funds.
Surprisingly, even ELSS saw outflows of Rs1,275cr in Dec-20. The surprise package was sectoral and thematic funds that saw inflows of Rs3,412 crore. That was more due to the slew of sectoral and thematic NFOs during the month. PSU hopes created positive flows in Dividend Yield funds too.
Hybrids disappoint but passive funds flatter in Dec-20
The concerns over equity funds spilled over to hybrid funds as was evident in the net redemption of Rs3,913cr in aggressive hybrid funds. There was selling across the other categories of hybrid funds with arbitrage funds taking a hit on sharply lower yields due to surplus liquidity in the bond markets.
The story of passive funds in the last few months has been all about CPSE ETFs, bond ETFs and global FOFs. The total net inflows into passive funds were to the tune of Rs8,209cr almost entirely contributed by the above passive categories. Gold funds are not really attracting interest after the sharp fall in gold prices from the recent peak.
Hurray, SIPs are back in business
The one big story supporting flows into equity funds in the last 5 years has been systematic investment plans or SIPs. The average monthly SIP volumes had gradually scaled above Rs8,000cr and had sustained for 18 months. After the pandemic, SIPs fell below Rs8000cr and has stayed at sub-8000 levels since Jun-20. In November, SIP flows touched multi-year lows of Rs7,302cr.
The good news is that SIP inflows are back at old levels at Rs8,418cr for Dec-20. Of course, the input is that most of these SIP flows have come tied to the NFOs, but then they are SIP flows nevertheless. The next few months will give the confirmation whether this trend has changed for the better. The big news in Dec-20 is that SIPs are finally back in business!