One of the key parameters used to gauge the growth and reach of mutual funds is the assets under management. AMFI has now published MF flow and AUM data up to February 2023, so a comparison with February 2022 gives an illustrative picture of how the AUMs have moved over the year and what has triggered this shift in AUMs over the last one year. 

Macro picture of mutual funds AUM

The table captures the overall picture of the assets under management (AUM) of mutual funds, spread across open-ended funds and close-ended funds.

Data Source: AMFI

At a macro level, the AUM of Indian mutual funds grew by 5.06%, entirely driven by growth in open ended funds. The close-ended funds not only saw the number of schemes reducing by more than half on a yoy basis, but even the close-ended AUM almost halved over last year. The open-ended funds saw AUM accretion of 5.94%, largely driven by flows into equity schemes and passive funds and little contribution from market level wealth creation.

How AUM of active debt funds moved over last year?

The table captures the movement in the AUM of debt funds over last year across various active debt fund categories.

Data Source: AMFI

Let us look at the number of active debt fund schemes first, which have fallen marginally over last year. The only category to see new schemes was the long duration category as investors preferred to lock in their funds at higher yields. Most of the other flows came into debt index funds, which are classed separately. Out of 17 schemes, only 3 schemes (with longer duration) saw accretion in AUM, with the other 14 categories seeing fall in AUM over last year. There was a clear preference away from many of the shorter duration schemes with substantial discretion offered to the fund manager. Overall debt funds saw compression in AUMs by 12.75% over last year, with floater funds, banking funds and shorter duration funds being the worst hit in terms of AUM compression.

AUM of active equity funds gave a good show last year?

Here, we capture the movement in the AUM of active equity funds over last year across various categories of active equity and growth funds.

Data Source: AMFI

Out of the 12 categories of active equity funds, all the categories saw accretion in AUMs over last year. What about number of schemes. One must remember that current regulations restrict any AMC from launching more than one scheme of the same category, except in case of flexi-cap funds and sectoral / thematic funds. Hence, you would typically see the accretion coming from that category, unless a new AMC comes into the picture or an existing AMC is not represented in any particular category. However, the 16% AUM accretion over last year has largely been an outcome of increase in the number of folios, SIP flows and a persistent supply of NFO money into equity oriented active funds. 

Another interesting trend is that bulk of the inflows have gone into mid cap and small cap fund; apart from multi cap funds. Clearly, investors seem to be leaning towards stocks beyond the top 100 stocks to generate alpha in their portfolios. In the last few years, the mid cap and small cap funds have not disappointed the investors and that impact is now showing in the AUM accretion in these funds. The 16% AUM accretion over last year is despite the markets hardly gaining 3-4% at an index level on a yoy basis.

AUM growth of hybrid and solutions funds over last year

Here, we capture the movement in the AUM of active hybrid funds and solution funds over last year across various categories. For simplicity, hybrid funds have been combined with solution-based funds.

Data Source: AMFI

Out of the 8 categories of hybrid and solution funds, six categories have shown decisively positive growth in AUM, while the AUM of equity savings funds have been flat. The only category to see a sharp fall in the AUM over last year is Arbitrage Funds, where the AUM has fallen 23.9% over last year. However, it must be remembered that arbitrage funds are not exactly equity/debt hybrids. Instead, then are more of a treasury product and with weak arbitrage returns, there had been a lot of unwinding in arbitrage funds in the last one year.

Despite a small base, the slew of NFOs allowed the multi-asset allocation funds to grow AUM at 37.1% yoy. Dynamic asset allocation Funds (BAFs) had a field period in FY22, but FY23 has not been to favourable for these funds and that is showing in tepid growth in AUM. Overall, the AUM of hybrid and solutions funds have grown by 3%, but what is gratifying is that the AUM at Rs5.19 trillion, makes them an interesting MF asset class.

But it was Passive Funds that ruled the AUM game

Here, we capture the movement in the AUM of passive index-based funds and ETFs. These refer to index funds in equity and debt and have been the big growth story. 

Data Source: AMFI

Passive funds have, perhaps, been the real story of the last one year. It is not just the 36.3% growth in AUM over last year, but even the unprecedented 50.4% growth in the number of passive schemes. There are two reasons for this growth. Firstly, there are no AMC limits on the number of passive funds and that has helped growth. However, that alone was not sufficient. There has been a subtle shift from active to passive investing as active fund managers (like their global counterparts) struggle to beat the index. As Jack Bogle said, “Why look for a needle in the haystack, when you can buy the entire haystack”.

The biggest takeaway from the AUM growth data is that passive funds and hybrid funds have a combined AUM of nearly Rs12 trillion as of date. This makes these alternate funds the third pillar of the India mutual funds story; apart from active equity funds and active debt funds. That is the big takeaway from the AUM data.

Thirteen Mutual Fund Trends visible in January 2023

Here is a collection of 13 interesting mutual fund trends visible in the mutual funds data released by AMFI for January 2023.

1. Over the last one year, the total assets under management (AUM) of mutual funds grew from Rs38.89 trillion to Rs40.80 trillion. So, in terms of average assets, the AUM is up 4.9% on a yoy basis. The AUM growth in equity funds and passive funds has been largely offset by AUM outflows from active debt funds between January 2022 and January 2023.
   
    
2. How has the scheme wise composition of assets under management changed in the last one year? Between January 2022 and January 2023, the AUM of active debt funds has fallen from 24.6% of overall AUM to just 19.3% of AUM. It has stabilized at that level over the last few months. Liquid fund AUM is up from 15.7% to 16.6% in last 1 year.
   
    
3. Equity funds have seen an improvement in active share across the board. For instance, the equity oriented schemes have seen their market share go up from 48.6% to 51% between January 2022 and January 2023. During the same period, the AUM of ETFs and FOFs is up from 11.2% to 13.1%.
   
    
4. In the last few years, we have seen the composition of MF AUM shifting away from institutions and towards individual investors. That trend got accentuated in 2022. Share of individual investors went up from 55% to 57.3% between January 2022 and January 2023. During the same period, the share of institutional clients in the AUM fell further from 45% to 42.7%.
   
    
5. How have individual and institutional investors allocated money to various asset classes as of January 2023? In active debt schemes, 58% of AUM was from institutions and 42% from individual. In equity schemes, institutions were 11% while individuals were 89%. In contrast, institutions were 86% of the AUM of liquid funds while individuals were 14%, which is not too surprising as that is more of a treasury product. What is perhaps disappointing is that individuals account for just about 10% of ETF/FOF AUM while institutions account for 90%. Clearly, individuals are not making the best of passive idea.
   
    
6. Let us look at this data differently. How does the composition of individual investors and institutional investors look like? Individuals have nearly 80% of their MF AUM in equity oriented funds, 14% in ETFs, 4% in liquid funds and just 2% in debt funds. Institutions have 33% of their allocation in liquid funds, 28% in ETFs/FOFs, 26% in debt funds and just about 13% in equity oriented funds.
   
    
7. Who contributed more to the AUM growth between January 2022 and January 2023? Was it individuals or institutions. Overall AUM in this period was up from Rs38.89 trillion to Rs40.80 trillion. This was largely driven by individual investor AUM growing from Rs21.40 trillion to Rs23.39 trillion (a growth of 9.3%). This can be attributed to a mix of NFOs, SIP flows and new MF folios being added. In contrast, the AUM of institutional investors fell from Rs17.49 trillion to Rs17.42 trillion between January 2022 and January 2023.
   
    
8. How does the mix of AUM look when classified into T-30 and B-30 cities. (T-30 represents the top 30 cities while the next rung is represented by B-30). As of January 2023, just about 17% of the AUM came from B-30 cities with 83% of the AUM still coming from the T-30 cities. But, how are the asset mix composed of in B-30 cities and in the T-30 cities?
   
    
9. Let us first talk about the B-30 cities as of January 2023. If you look at the B-30 AUM, 79% of the AUM was in equity oriented schemes while only the balance 21% were in non-equity schemes. If you go to the T-30 cities, 45% of AUM was in equity schemes and 55% was in non-equity schemes. This could be attributed to the fact that most of the large corporates and institutions are located in the T-30 cities, or at least the treasuries are managed out these T-30 cities.
   
    
10. The Direct Plan was permitted since 2013 to ensure that those who want to invest directly can avoid paying the marketing commissions on the fund. This tends to enhance returns. Nearly 45% of the overall mutual fund flows came in through the Direct Route. However, this can be misleading because this segment is dominated by the corporates and institutions. In the case of individuals, only 20% of retail investors and 25% of the HNIs invested through the Direct route. However, the percentage is as high as 90% for institutional investors and 77% for corporates. They have consistently adopted the direct route rather than the regular route and have been saving on commissions.
    
     
11. How have the folios (investor accounts unique to an AMC) grown over time in India. Folios are a much better reflection of the retail spread of mutual fund investments. In September 2014, the total number of mutual fund folios were at a low of 3.95 crore. Between September 2014 and January 2023, the total number of folios have grown 3.6 times to 14.28 crore folios. Post the COVID pandemic in March 2020, there has been a sharp surge in the number of mutual fund folios from 8.97 crore to 14.28 crore.
    
     
12. How is the mix of these folios made up of? Out of the 14.28 crore folios in mutual funds as of December 2023, retail individuals accounted for 91.1% of the folios, high net worth investors (HNIs) accounted for 8.2% of the folios while institutions accounted for just about 0.7% of the overall folios of mutual funds. Out of the total folios, 67.5% are in equity oriented funds, 12.5% of the folios are in ETFs / FOFs, 8.5% folios in hybrid funds and the balance is distributed across debt funds, liquid funds, solution funds and closed ended funds.
    
     
13. Finally, the data on mutual funds breaks a very popular myth that retail investors tend to take a very short term view of mutual funds. For instance, you would be surprised to know that 44.4% of the equity assets of mutual funds stayed invested for more than 2 years while 72% of the equity fund investments stayed invested for more than 1 year. It is still better if you look at retail investors. More than 57% of the equity assets were held by retail investors for at least 2 years while over 80% of equity fund investments by these retail investors for at least one year. That surely dispels the myth that retail investors take a very myopic view of equity fund investing.

So, what are the broad takeaways. Firstly, equity fund investors are still largely equity oriented but are not making the best of passive options. Secondly, equity fund investors are actually long term investors and are patient enough to hold on. The mutual fund landscape in India is changing, and it is changing for the better.