Mutual fund folio growth: how the November 2023 story panned out

11 Dec 2023 , 07:04 AM

For the month of November 2023, the total net inflows were Rs25,616 crore. This was almost entirely dominated by inflows into active equity funds and hybrid funds. While solution fund flows and passive fund flows were largely neutral, the debt fund flows were negative. The overall flows into mutual funds were more than Rs80,000 crore in October but it fell to just over Rs25,000 crore in November. But the big story of November 2023 was the AUM of mutual funds overall, crossing Rs49 trillion mark. It feels good to say that the AUM of mutual funds has grown at a frenetic pace, but that really does not tell if the retail appetite for mutual funds is picking up. That is captured by the folios. What exactly are folios and how are they a god barometer of retail spread.

Mutual Fund Folios are unique investor accounts with an AMC. If you are investing with 6 different funds across 6 different AMCs, then you have at least 6 folios. You can consolidate folios of the same AMC under a single folio but folios across AMCs cannot be consolidated. Unlike the growth in AUM, which can be led by institutions or HNIs; the folio growth is a better barometer of retail participation. In last 3 years, the sharp surge in mutual fund folios was led by the Gen-X and Gen-Z investors. Such trends become apparent when you look at folio growth only. That is why folios growth assumes importance. Unique folios may not be unique investors, but they give a fairly reliable picture. Even if you factor in the risk of multiple folios, the folio growth offers a better perspective of retail spread and retail intensity of mutual fund flows. Here are how the MF folios grew across categories. 

MF Folios: Macro picture for November 2023

How does the macro picture for November 2023 for mutual fund folios look like across open-ended and close-ended funds?

Macro picture	Total Folios Oct-23	Total Folios Oct-22	Folio Growth
Open ended Funds	16,12,26,893	13,92,48,452	15.78%
Closed Ended and Interval Funds	5,87,690	5,06,698	15.98%
Grand Total	16,18,14,583	13,97,55,150	15.78%

Data Source: AMFI 

At a macro level, the total number of mutual fund folios as of November 2023 stood at 16.18 crore folios compared to 15.96 crore folios at the end of October, and 15.71 crore folios at the end of September 2023. On a yoy basis over November 2022, total folios are up 15.78% overall, which better than 14.79% yoy folio growth achieved in October 2023. 

This ratio has been consistently improving over the last 5 months. In the last few months, even the closed ended folios have shown growth on a yoy basis and that is due to surge in demand for fixed term plans (FTP). These FTPs are a good strategy to lock in higher yields when yields are expected to trend lower. However, despite this positive picture, the close-ended folios account for just about 0.36% of the total mutual fund folios in India.

Debt fund folios growth tapers in November 2023

Debt fund folios had been under pressure in recent months, but November 2023 marked the fifth month in succession of positive growth in the number of debt fund folios. The increase of 0.59% may be lower than the 0.72% in October, but yoy growth is still a positive factor for debt funds. Since July 2023 there is consistent accretion in debt fund folios.

Active Debt Funds	Total Folios Nov-23	Total Folios Nov-22	Folio Growth
Long Duration Fund	47,151	26,293	79.33%
Overnight Fund	8,29,534	6,19,181	33.97%
Gilt Fund	1,79,708	1,69,251	6.18%
Money Market Fund	4,40,876	4,24,007	3.98%
Dynamic Bond Fund	2,24,067	2,17,928	2.82%
Ultra Short Duration Fund	6,41,609	6,30,915	1.69%
Liquid Fund	17,84,277	17,68,502	0.89%
Medium to Long Duration Fund	1,03,436	1,07,203	-3.51%
Corporate Bond Fund	5,92,971	6,21,178	-4.54%
Medium Duration Fund	2,42,349	2,55,023	-4.97%
Gilt Fund with 10 year constant duration	39,873	42,652	-6.52%
Low Duration Fund	9,03,392	9,74,624	-7.31%
Short Duration Fund	4,78,711	5,20,688	-8.06%
Floater Fund	2,25,050	2,46,435	-8.68%
Banking and PSU Fund	2,70,984	3,06,337	-11.54%
Credit Risk Fund	2,21,663	2,52,907	-12.35%
Total of Debt Funds	72,25,651	71,83,124	0.59%

Data Source: AMFI

What are the key takeaways from a yoy comparison of debt fund folios as of November 2023. Out of the 16 categories of debt funds available in India as per AMFI classification, 6 categories showed at least 1% expansion in the number of folios, while the 9 fund categories saw contraction in folios. Liquid funds grew folios at less than 1%. The ratio of contracting folios to expanding folios has been static for the large 6 months at 9:7. That means; the undertone is still weak. The leader of the pack was Long duration fund folios, which grew 79.33% yoy, albeit on a relatively small base. However, overnight funds grew folios at 33.97%, even on a much larger base. The broad message is that investors are more than willing to lock themselves into longer durations at higher yields. Even gilt funds and dynamic bond funds have seen positive growth in folios. RBI rate stance is still fluid. 

In the latest December monetary policy, the RBI once again opted to hold rates at 6.5%. This is the fifth policy in succession where the RBI has held status quo. It suggests that even if India may not be at peak rates, it is close to peak rates. The standard suspects in negative folio growth among debt funds were credit risk funds, banking & PSU funds, floater funds and short duration funds. Folio growth has been negative where there is asset quality risk or too much managerial discretion; as investors are uncomfortable with both. Then there are floater funds, where there is absence of investment options. Debt fund folios in November 2023 expanded by just 0.59%, compared to 0.72% in October 2023 and 0.76% in September 2023. The good news is; since July 2023, growth in debt fund folios is consistently positive.

Equity funds dominated folio growth in November 2023

In contrast to debt funds, there was little ambivalence in the growth of equity fund folios in November 2023. In the case of equity funds, the macro level folio expansion improved further to 17.76% in November 2023, compared to 16.78% in October 2023, 15.75% in September 2023, 15.01% in August 2023, 13.66% in July 2023, 12.71% in June 2023, and 12.34% in May 2023. November 2023 folio growth story for equity funds surely stands out.

Active Equity Funds	Total Folios Nov-23	Total Folios Nov-22	Folio Growth
Small Cap Fund	1,59,83,476	97,51,585	63.91%
Multi Cap Fund	51,43,687	37,28,778	37.95%
Dividend Yield Fund	8,04,395	5,90,115	36.31%
Mid Cap Fund	1,25,22,817	99,52,029	25.83%
Value Fund/Contra Fund	55,14,679	43,89,832	25.62%
Sectoral/Thematic Funds	1,48,76,417	1,28,18,711	16.05%
Large & Mid Cap Fund	85,16,474	74,85,176	13.78%
ELSS	1,55,04,556	1,44,65,663	7.18%
Flexi Cap Fund	1,33,67,686	1,24,81,293	7.10%
Large Cap Fund	1,31,48,805	1,28,61,604	2.23%
Focused Fund	51,27,707	53,18,079	-3.58%
Total of Equity Funds	11,05,10,699	9,38,42,865	17.76%

Data Source: AMFI

In November 2023, a total of 10 out of the 11 categories of equity funds as per AMFI classification saw accretion in folios. That is a strike rate of an impressive 91%. The only equity fund category to see contraction in folios in November 2023 was Focused Funds, with folios shrinking by -3.58%. This was the story last month also, due to base effect and absence of NFOs. Small cap funds continue to top the folios growth at 63.91%, as retail investors showed a clear preference for alpha. 

Oher growth stories in terms of equity fund folios were multi-cap funds at 37.95%, dividend yield funds at 36.31%, mid-cap funds at 25.83%, and value / contra funds at 25.62%. The rankings on folios growth are almost the same as previous months. There are two trends one can decipher. Large cap folio growth is facing stiff competition from passive index funds and index ETFs. It is the alpha heavy small cap funds, dividend yield funds and mid-cap funds that are attracting folio accretion. Managerial discretion is a grey area with folios shift from flexi cap funds to multi-cap funds. Investors prefer a more structured approach. Equity fund folios growth at 17.76% in November 2023 give a strong hint of surge in retail participation. 

Hybrid folio growth was all about multi-asset allocation funds

Here we have combined hybrid funds with solution-based funds to give a realistic picture of hybrids. Folios have grown across categories, except arbitrage funds and dynamic asset allocation funds (BAFs). Arbitrage Funds attracted maximum flows but folios growth has been negative, showing more of consolidation among corporates happening.

Hybrid / Solution Funds	Total Folios Nov-23	Total Folios Nov-22	Folio Growth
Multi Asset Allocation Fund	15,24,927	8,54,585	78.44%
Equity Savings Fund	3,83,270	3,63,184	5.53%
Retirement Fund	28,30,927	27,31,618	3.64%
Conservative Hybrid Fund	5,32,921	5,16,008	3.28%
Aggressive Hybrid Fund	53,54,089	52,66,770	1.66%
Childrens Fund	29,54,303	29,12,681	1.43%
Dynamic Asset Allocation/BAF	43,79,845	44,26,119	-1.05%
Arbitrage Fund	4,64,499	4,75,354	-2.28%
Total of Hybrid Funds	1,84,24,781	1,75,46,319	5.01%

Data Source: AMFI

Out of the 8 categories of hybrid and solution-based funds available in India as per the AMFI classification, 6 categories saw folio expansion. Arbitrage funds saw contraction of -2.28% in folios (slightly better than in October). Even Dynamic Asset Allocation Funds (BAFs) saw contraction of -1.05% in November 2023 due to high base and absence of NFOs. In recent months, the big folio growth leader has been multi-asset allocation funds; despite the base gaining heft. NFOs are just one part of the story. Over the longer period, there is now anecdotal evidence that multi-asset allocation funds have not only outshone in terms of returns but also emerged as better risk managers in a volatile market scenario. That is logical since 70-75% of portfolio returns emanate from asset allocation and that is what these multi-asset allocation funds focus on. Just get asset allocation right!

The 78.44% folio growth in multi-asset allocation funds continues to be the highlight of hybrid fund folios growth. Investors are looking to auto hedge risks by spreading across asset classes and this is the best answer in a single consolidated package. All other categories saw single-digit growth in folios. For the hybrid category of funds, number of folios grew by 5.01% in November compared to 4.33% in October 2023; 3.67% in September 2023, and 2.74% in August 2023. The momentum remains positive for hybrid funds; and that is the good news.

Passive funds are still showing top class folio growth

Under passive category, we have included equity and debt related index products, apart from gold funds and Fund of Funds (FOF). You can call them passive products or benchmarked products; but the intent is the same. The focus of these passive funds is more on minimizing tracking error. Even though the AUMs may be tapering for passive funds, the folios are still sharply higher on a yoy basis.

Passive Funds	Total Folios Nov-23	Total Folios Nov-22	Folio Growth
Index Funds	59,69,122	30,78,798	93.88%
Fund of funds investing overseas	14,86,263	12,52,936	18.62%
Other ETFs	1,27,19,190	1,16,77,116	8.92%
GOLD ETF	48,91,187	46,67,294	4.80%
Grand Total	2,50,65,762	2,06,76,144	21.23%

Data Source: AMFI

Passive funds are the only category where all the categories saw expansion in the number of folios for the umpteenth time. Passive fund folios gained in the last on year from targeted NFOs and a preference for passive products; on the equity and debt side. Index funds dominated the folio growth at 93.88% followed by FOFs at 18.62%. Index ETFs and gold ETF followed behind with single-digit folio growth and the tepid growth in index ETF folios is largely due to the predominance of institutional and corporate investors. Passive fund folio growth improved to 21.23% in November 2023; compared to 19.40% in October 2023, 17.86% in September 2023, 17.08% in August 2023, 14.79% in July 2023, and 13.08% in June 2023. Folio growth continues to remind us that Indian equity markets are becoming inclusive and this includes the passive fund story also.