It shows strong positive inflows across equity and passive funds, but outflows from active debt funds and hybrid funds. This replicates the trend seen in the September 2022 quarter.
December 2022 marks the fifth consecutive quarter that active debt fund flows have been negative. This is indicative of the pressure of higher bond yields and diminishing attractiveness compared to alternatives. The December 2022 quarter showed a substantial bias in favour of passive funds followed by active equity funds.
As of the close of December 2022 quarter, net AUM of Indian mutual funds stood at Rs39.89 trillion, a gain of 3.81% over the September 2022 quarter. Although the flows into equity funds and passive funds were clearly positive, these gains were largely neutralized by the volatility in the equity market despite persistent FPI buying in the December quarter.
The equity fund AUM accretion in the December 2022 quarter was triggered by net inflows. Despite the bounce in markets in October and November, the volatility of December put some pressure on equity fund AUM. Here is the story of mutual fund AUM in the December 2022 quarter and how the flows into specific categories of mutual funds panned out.
Debt fund flows in December 2022 quarter?
Flows into Debt Funds in the Dec-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Dec-22 |
Rs23.44 trillion | Rs23.65 trillion | Rs(0.21) trillion | Rs12.42 trillion |
Indian debt funds saw net redemptions of Rs21,096 crore in the December 2022 quarter, which is much lower than the massive sell-offs seen March 2022 and the June 2022 quarter. The net outflows for December 2022 quarter appeared to stabilize and taper after the rates had been hiked by 225 basis points by the RBI and most of the downside risks were factored into bond prices.
Let us look at key flow drivers and start with inflows? Only liquid funds saw substantial inflows in the quarter of Rs39,509 crore. Among smaller inflows in the quarter, money market funds saw inflows of Rs2,030 crore, corporate bond funds Rs1,220 crore, long duration funds Rs559 crore and gilt funds Rs344 crore. Most of the other categories of debt funds saw either flat flows or strong outflows in the quarter.
The December 2022 quarter story of debt fund flows once again veered towards broad-based redemptions. Overnight Funds saw outflows of (Rs40,688 crore), Short Duration funds (Rs5,163 crore), Floater funds (Rs5,004 crore), Banking & PSU funds (Rs4,755 crore), Low Duration Funds (Rs3,148 crore), Medium Duration Funds (Rs2,618 crore) and ultra-short duration Funds (Rs2,290 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 December 2022 quarter stood at Rs12.42 trillion with its overall share of MF AUM lower sequentially at 31.82%. In the last one year, the big story has been the way, the equity fund AUM and the passive fund AUM have grown sizably at the cost of active debt fund AUM.
Equity fund flows in December 2022 quarter
Flows into Equity Funds in the Dec-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Dec-22 |
Rs83,583cr | Rs64,631cr | Rs18,952cr | Rs15.25 trillion |
After robust inflows of around Rs50,000 crore in each of the last few quarters, December 2022 quarter saw net equity inflows tapering to Rs18,952 crore. This is despite a sharp spike in the SIP flow numbers as well as the number of NFOs raising fresh funds. Unlike in the previous few quarters, several equity fund categories saw net outflows in the December quarter.
This is despite steady flows from systematic investment plans (SIPs) and from new fund offerings (NFOs). One interesting trend that is visible in the December quarter is the general resistance among people in buying large cap funds as they are scouting for alpha in the mid-cap and small cap space. For the December quarter, large cap funds saw outflows of Rs(892) crore while dividend yield funds and focused funds also saw minor fund outflows.
The positive contributors to equity funds were a lot more affirmative. The search for Alpha has been more pronounced this time. Small cap funds led the quarter with net inflows of Rs5,205 crore, followed by mid-cap funds at Rs4,524 crore. Among other categories seeing positive net flows in the December 2022 quarter were sectoral & thematic funds at Rs3,862 crore, large & mid cap funds Rs2,972 crore, multi-cap plus flexi-cap funds Rs1,741 crore, value funds Rs1,173 crore and ELSS funds Rs696 crore.
The total AUM of equity funds at the end of the December 2022 quarter stood at Rs15.25 trillion with a decisive market share of 37.81% marking a big shift in the last one year. In the December 2022 quarter 2 trends were visible. Firstly, there was a shift out of active funds into passive funds. Even within active, there was a shift from large index players into small and mid-cap stocks. However, equity funds have maintained the share lead over debt funds and widened the lead further in the December quarter.
Hybrid fund flows in December 2022 quarter
Flows into Hybrid Funds in the Dec-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Dec-22 |
Rs34,962cr | Rs42,004cr | Rs(7,042)cr | Rs4.91 trillion |
In December 2022 quarter, hybrid fund saw outflows after several quarters of net inflows and this can be largely attributed to selling in arbitrage funds as well as investors getting disillusioned with balanced advantage funds (BAFs). However, the NFOs that were driving record collection by BAFs were conspicuous by their absence. This resulted in the absence of incremental NFO flows into the Balanced Advantage Funds (BAF).
Let us look at the inflows into hybrid funds first. Only multi-asset allocation funds saw net inflows of Rs1,884 crore in the December 2022 quarter. However, Arbitrage Funds saw net outflows of Rs(5,661) crore in December 2022 quarter, due to treasury considerations. Balanced Advantage Funds (BAFs) also saw outflows to the tune of Rs2,462 crore. Total AUM of all hybrid funds at the end of December 2022 quarter stood at Rs4.91 trillion, even as its AUM share in December 2022 has actually fallen marginally to 12.47%.
Passive fund flows in December 2022 quarter
Flows into Passive Funds in the Dec-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Dec-22 |
Rs68,824cr | Rs32,771cr | Rs36,053cr | Rs6.68 trillion |
Passive funds had another fantastic December 2022 quarter with net inflow of Rs36,053 crore, almost at par with the robust inflows in the last three quarters. There was traction across passive categories. Index Funds/ETFs saw inflows of Rs20,414 crore and other ETFs Rs15,600 crore. Gold funds saw tepid outflows of Rs321 crore while FOFs saw inflows of Rs359 crore. Passive funds now contribute a whopping 16.36% of total MF AUM. With most of the NFOs being dominated by passive funds, AUM growth is understandable.
To summarize the trend of the quarter, 4 trends emerge.
The redeeming feature of the month was the flows into index funds and ETFs, which actually helped flows. December 2022 repeated the SIP story, touching a record level of Rs13,573 crore in December 2022. Secondly, new fund offerings (NFOs) also gathered steam in December 2022 collecting Rs8,486 crore.
The NFO flows in December 2022 were largely dominated by bond ETFs, multi-asset allocation funds and closed ended fixed term plans (FTP). Let us quickly turn to the AUM story for December 2022. Assets under management (AUM) is the combination of flows and capital accretion and includes the AUM of equity, debt and hybrids.
Month | Debt AUM (Rs trillion) | Equity AUM (Rs trillion) | Alternate AUM (Rs trillion) | Overall AUM (Rs trillion) |
Dec-21 | 14.05 | 13.34 | 9.72 | 37.73 |
Jan-22 | 14.13 | 13.38 | 9.89 | 38.01 |
Feb-22 | 14.09 | 12.95 | 9.91 | 37.56 |
Mar-22 | 12.99 | 13.65 | 10.31 | 37.57 |
Apr-22 | 13.56 | 13.66 | 10.42 | 38.04 |
May-22 | 13.22 | 13.32 | 10.40 | 37.22 |
Jun-22 | 12.34 | 12.86 | 10.20 | 35.64 |
Jul-22 | 12.46 | 14.16 | 10.88 | 37.75 |
Aug-22 | 13.03 | 14.78 | 11.26 | 39.34 |
Sep-22 | 12.42 | 14.63 | 11.12 | 38.42 |
Oct-22 | 12.45 | 15.22 | 11.58 | 39.50 |
Nov-22 | 12.57 | 15.58 | 11.93 | 40.38 |
Dec-22 | 12.42 | 15.25 | 11.92 | 39.89 |
Data Source AMFI
The overall AUM of the mutual fund industry as of the close of December 2022 stood at Rs39.89 trillion, slightly lower than in November 2022, due to the fall in the index during the month. Here are some key takeaways.
Let us now turn to debt mutual fund flows for the month of December 2022.
Debt fund flows face quarterly treasury pressure in December 2022
In the last one year, debt fund flows have been under pressure and have actually been negative in all the quarters. For the month of December 2022, debt funds saw net outflows of Rs21,947 crore. This is almost a third of the debt outflows seen in September 2022. The reasons for outflows are quite apparent. At the end of each quarter, debt funds witness outflows due to treasury operations of corporates. Companies park in debt funds for short term and they need funds to pay advance taxes. Active debt funds have also faced pressure of flows due to excess hawkishness of the RBI and the US Federal Reserve.
Here is a quick summary of the colour of debt fund flows in December 2022. The funds that saw positive inflows were limited. Ultra-short duration funds saw inflows of Rs1,737 crore while long duration funds saw inflows of Rs324 crore. Clearly, the overall flows in active debt funds were biased towards the sell side as is evident from the large net selling number. Treasury managers have been cautious about longer term debt since longer duration bonds are more vulnerable to rise in bond yields.
We now turn to the larger universe of debt funds that saw outflows in December 2022. Big selling was visible in Liquid funds Rs13,852 crore, Floater Funds Rs2,240 crore, Medium Duration funds Rs1,800 crore, Banking & PSU Funds Rs1,353 crore, Overnight funds Rs1,254 crore, Money Market Funds Rs915 crore, short duration funds Rs783 crore and corporate bond funds Rs713 crore. With bond yields hovering around 7.3%, the pressure on debt funds is quite obvious. The recent RBI MPC minutes also hinted at continued hawkishness.
NFOs, SIPs boosted active equity fund flows in December 2022
Equity fund flows in December 2022 were relatively tepid at Rs7,303 crore. The big thrust to equity flows came from Rs8,486 crore of NFO flows and Rs13,573 crore of SIP flows. Now for the equity fund inflow story! During December 2022, small cap funds led the way with Rs2,245 crore of inflows. Among other key contributors, Mid Cap funds collected Rs1,962 crore and large & mid cap funds saw inflows of Rs1,190 crore. The combination of Multi-cap funds plus flexi-cap funds saw inflows of Rs1,080 crore. Other fund categories that saw meaningful inflows include value funds at Rs648 crore and ELSS funds at Rs564 crore. Investors are betting on alpha and shifting large cap fund allocations to index funds.
There were some equity fund categories with negative flows too. For instance, sectoral funds saw outflows of Rs204 crore and focused funds Rs164 crore. One parameter that tells you the story of equity fund flows very eloquently is folio accretion. Folios are MF investor accounts and give a fairly good idea of retail spread. As of the close of December 2022, equity folios touched an all-time high of 949.39 lakh folios out of total mutual fund folios of 1,411.20 lakhs; or 67.28% share of overall folios. It must be added that passive fund folios have grown to 208.51 lakhs; or a significant 14.8% of the total folios.
Hybrid flows turn around, but passive flows steal the show
Hybrid fund flows turned around to a positive Rs2,255 crore in December 2022; largely because of NFO flows into Baroda BNP multi-asset allocation fund. Even arbitrage funds saw a turnaround to positive flows in the month, after several months of consistent negative flows in arbitrage funds. However, the NFOs of the highly popular Balanced Advantage Funds (BAF) is yet to pick up. Multi asset allocation funds saw inflows of Rs1,711 crore, largely driven by the Baroda BNP NFO. Arbitrage fund saw net inflows of Rs883 crore while the BAFs saw outflows of Rs413 crore.
Passive funds were again the big story of December 2022, witnessing healthy inflows of Rs15,398 crore as investors looked for lower cost alpha. What is more interesting is that the gross flows into passive funds at Rs28,319 crore is inching very close to the gross flows into active equity funds. The passive surge was led by equity & debt index ETFs at Rs8,788 crore followed by index funds at Rs6,737 crore. Passive funds cornered bulk of the NFO flows.
Three key takeaways from the December 2022 MF flows
The story of mutual fund flows in December 2022 can be summed up in 3 key takeaways.
Flows into Debt Funds in the Sep-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Sep-22 |
Rs25.12 trillion | Rs25.23 trillion | Rs(0.11) trillion | Rs12.42 trillion |
Flows into Equity Funds in the Sep-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Sep-22 |
Rs86,098cr | Rs56,980cr | Rs29,118cr | Rs14.6 trillion |
Flows into Hybrid Funds in the Sep-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Sep-22 |
Rs33,711cr | Rs48,147cr | Rs(14,436)cr | Rs4.82 trillion |
Flows into Passive Funds in the Sep-22 quarter (AMFI) | |||
Funds Mobilized | Redemptions | Net Flow | Net AUM as of Sep-22 |
Rs66,885cr | Rs23,922cr | Rs42,963cr | Rs5.99 trillion |
For December 2022, inflows into active equity funds remained positive, but flows into active debt funds were deeply in the negative.