In the enthusiasm of Au-20, overall mutual fund AUM almost touched its Jan-20 highs. There has been clear tapering of AUM in Sep-20. This was largely due to the outflows in debt funds also due to the sharp correction in the Nifty and Sensex in the last week of September. One concern has been that NFOs have been largely tepid after showing peak performance in Dec-19, Feb-20 and Jul-20, when PSU ETFs were in vogue.
Quarter end considerations caused debt fund outflows in Sep-20
For the month of Sep-20, debt funds saw combined net outflows of Rs51,962cr. The surge in outflows can be largely attributed to quarter-end factors. That is when most corporates and institutions redeem their short duration funds to pay advance tax, GST and other statutory dues. That is a routine phenomenon and not much needs to be read into it, more so since the outflows are concentrated at the short end.
Liquid funds, ultra short duration funds and money market funds saw net redemptions to the tune of Rs75,000cr in Sep-20. However, this was partially compensated by inflows in longer term debt fund categories. For example, Banking & PSU fund saw net inflows of Rs6,415cr, while floater funds saw net inflows of Rs5,199cr.
Clearly, a bunch of savvy institutional investors are betting that the combination of higher fiscal deficit and higher inflation would lead toa spike in bond yields. Credit risk funds continued to see net outflows of Rs540cr but it is nowhere close to the intensity of April and May as the post-Templeton panic appears to have given way to a reasonable approach.
Equity funds see third consecutive month of net outflows
The equity fund selling continued for the third month in succession. Although the intensity of selling in equity funds at Rs734cr is much lower than July and August, there is clearly pressure in select segments. The selling happened in the standard suspects. Outflows in large cap funds to the tune of Rs576cr was largely driven by MF limits while the Rs1,144cr outflows in multi-cap funds was triggered by uncertainty over the new classification methodology outlined by SEBI. Investors are beginning to prefer alpha plays as is evident from the positive flows of Rs824cr into focused funds.
One notable trend has been that the SIP flows in Sep-20 continue to languish at Rs7,788cr. This is the fourth consecutive month when monthly SIP flows have been below Rs8,000cr. Since, SIPs are predominantly equity funds and ELSS, it hints at bulk selling in equity funds. SIPs have just about managed to save the day for equity funds.
Aggressive hybrids sold off, but interesting trend in passives
Within the category of hybrid funds, the aggressive funds sold off to the tune of Rs2,004cr as risk-off appears to be the theme. The popular arbitrage funds also sold off to the tune of Rs1,732cr but that could again be attributed to treasury management, since arbitrage funds are most popular among corporates.
But the real story continued to be in passive assets. The passive category remained the star performer seeing inflows of Rs6,031cr in an uncertain market. This was driven by inflows of Rs3,910cr in index funds and index ETFs, Rs597cr in gold ETFs and a surprising infusion of Rs1,520crore into overseas fund of funds (FOF). Over the last decade international assets have been the big outperformers and Indian mutual fund investors are jumping into the bandwagon.
SIP flows under pressure in Sep-20 but still growing
SIP inflow in Sep-20 fell marginally to Rs7,788cr and marked the fourth month when the SIP flows remained under Rs8,000cr. But, cosmetics apart, the good news is that SIPs are still robust. The total number of SIP folios actually moved up from 3.30 crore to 3.33 crore. However, the SIP AUM fell by Rs725cr to Rs335,000cr but that was more due to the month end crack in the stock markets.
Gross selling in equity funds continued to be elevated at Rs17,686cr in Sep-20 and there appears to be pressure of selling at higher levels. It remains to be seen how equity fund investors react to the Sensex crossing 40,000 levels. But the good news comes from the surge in demat accounts which indicates a huge appetite among the young and the ambitious. A lot of this demand is likely to translate into long-term demand for equity funds. That would be worth its weight in gold!