As the chart above depicts, the sharp growth in mutual fund AUMs came from September 2019 onwards. That was the time the Finance Minister had announced the sharp cut in corporate tax rates from 30% to 22%. Let us now focus on January 2020 and see how the mutual fund flows were spread across various asset class categories.
Robust inflows into debt funds in January 2020
Debt funds saw total inflows of Rs109,306cr for the month of January 2020, which was a sharp shift from the heavy debt fund selling in the month of December 2019. The focus continued to be on positive flows into funds at the short end of the yield curve. More than 93% of the fund flows came into funds at the short end which included overnight funds, liquid funds, money market funds and short duration funds. Medium duration funds and credit risk funds continued to see outflows clearly indicating that debt fund buyers still do not have the appetite for credit risk or for any kind of structure risk. Like in the previous months, the PSU and Banking funds saw inflows of more than Rs3,000cr due to their safety perception. Overall debt fund AUM stood at Rs12.42 trillion and still accounts for the biggest chunk of mutual fund AUM.
Sharp rise in equity fund inflows
For the month of January 2020, equity funds saw a sharp rise in inflow with Rs7,877cr flowing into equity funds during the month. There was an interesting trend in the month in the sense that more than 70% of the flows came into concentrated themes like mid cap funds, small cap funds, multi-cap funds and focused funds. ELSS funds did attract close to Rs931cr of inflows, which is understandable considering that most tax payers normally start saving for tax in the last quarter of the year. Value and contra funds continued to see outflows in January. The overall AUM of equity funds (excluding index funds/ETFs) stood at Rs7.90 trillion as of January 2020.
Hybrid and other funds see a conservative shift
Hybrid funds overall saw inflows of Rs1,260cr, but there was an important sub-story in the hybrid funds. There is a clear shift towards a more conservative approach to hybrid funds in the month of January. For example, aggressive hybrid funds and equity savings funds saw outflows during the month of January, while there were net inflows into dynamic allocation funds and arbitrage funds.
On the passive flow side, index ETFs continued to account for over 80% of the total passive flows with index funds, gold funds and FOFs accounting for the rest. ETF flows clearly appear to have benefited from the government CPSE ETF vehicle for divesting PSU shares.
But, the biggest story of January 2020 remained SIP flows
It is said that the best barometer of retail participation in mutual funds is the consistency of inflows into systematic investment plans (SIPs). While the break-up of SIP flows are not available, they are predominantly retail in nature and bulk of the SIP flows go into equity and equity related funds (including ELSS). Consider the chart below which captures the monthly SIP inflows into mutual funds since January 2019.
Clearly, SIPs can be even looked at over a longer period perspective. If you look at the monthly SIP flows over the last 4 years, you will find that the average monthly SIP flow has gone up from around Rs4,000cr to well above Rs8,000cr. This is what is actually sustaining the mutual fund segment. The total number of SIP accounts crossed the 3 crore mark for the first time in history, closing the month of January 2020 at 3.04 crore SIP accounts. Also, the gross accretion of 12.07 lakh SIP accounts in Jan-20 was the highest single-month accretion in the last one year. The total SIP AUM of Indian mutual funds stood at Rs3.25 trillion, accounting for nearly 11.73% of the overall mutual fund AUM. That could be the real story to take away from the Jan-20 mutual fund flow numbers.