Active equity funds corner half of Sep-24 quarter net flows

14 Oct 2024 , 09:51 AM

MUTUAL FUND FLOWS IN SEPTEMBER 2024 QUARTER – MACRO VIEW
In a sense, the quarterly view of mutual fund flows are a cumulative picture of the three monthly data points. However, they have a special significance. They tide over short term cycles and give a more secular view of flows. For example, a cursory look at the September 2024 quarterly flows data tells us that the active equity funds accounted for nearly half of the total flows into mutual funds in the September quarter. Also, for the second quarter in succession, the debt funds saw positive inflows for the quarter, despite the disturbance of September outflows. In short, debt funds are adjusting to the quarterly cycles and the secular flows are still coming in. Flows into hybrid funds and passive funds has been relatively tepid in the September quarter, which is not surprising considering that most of the NFOs in recent months have gravitated towards active equity funds only.

Let us begin with the macro picture of how the fund flows behaved in the quarter ended September 2024. The total gross flows into open ended funds in the September 2024 quarter stood at ₹34.88 Trillion while the redemptions of open ended funds in the quarter stood at ₹32.62 Trillion, resulting in net inflows into open ended funds overall to the tune of ₹2.26 Trillion. Close-ended funds, once again, saw negative flows in the quarter to the tune of ₹97 Crore on a net basis, although it made little difference to the overall flows in the September 2024 quarter. In fact, September 2024 quarter saw net inflows into debt funds for the second quarter in a row; indicating that debt fund flows are learning to live with the quarterly treasury outflows of corporates. It indicates that, even outside the treasury flows, there is some genuine interest building up in active debt funds. Here is a quick tabular view of the macro picture of mutual fund flows in the September 2024 quarter.

Macro picture of flows in mutual funds in September 2024 quarter
Fund Category	Funds Mobilized	Redemptions	Net Flows	Net AUM (Sep-24)
Open Ended Funds	₹34,87,722 Crore	₹32,61,367 Crore	₹2,26,355 Crore	₹66,82,158 Crore
Close Ended Funds	₹20 Crore	₹117 Crore	₹(97) Crore	₹26,801 Crore
Mutual Funds Overall	₹34,87,742 Crore	₹32,61,484 Crore	₹2,26,258 Crore	₹67,09,259 Crore

Data Source: AMFI

As of the close of the September 2024 quarter, the net AUM of Indian mutual funds stood at ₹67.09 Trillion; compared to ₹61.16 Trillion in June 2024, ₹53.40 Trillion as of the March 2024 quarter, and ₹50.78 Trillion as of December 2023 quarter. That is steady progression, although this can be attributed to flows and also to the Nifty and the Sensex scaling record highs!. In terms of specific data points, systematic investment plans (SIPs) have picked up steam in a big way, while the NFOs are also gathering steam in recent months, resulting in steady flow of money into mutual funds. By default, debt fund flows tend to be erratic due to the predominance of treasury flows. One must remember that, most of the corporate treasuries have quarterly pressures in the form of advance tax payouts.

DEBT FUND FLOWS IN SEPTEMBER 2024 QUARTER

Flows into Debt Funds in the Sep-24 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Sep-24
₹30.50 Trillion	₹29.99 Trillion	₹0.51 Trillion	₹14.97 Trillion

Data Source: AMFI

For the second quarter in a row, debt funds saw net inflows, despite the quarter-end treasury redemptions. The net flows into debt funds in the September 2024 quarter at ₹0.51 Trillion was sharply lower than the net inflow of ₹1.25 Trillion into debt funds in the June 2024 quarter. However, what is important is that the trend of positive quarterly flows are being maintained. Incidentally, in the 6 quarters prior to the June 2024 quarter, debt funds had seen consistent net outflows. In the last two quarters ended June and September 2024; there has been a visible trend wherein debt fund investors are willing to lock themselves into long-dated instruments rather than just churning in and out of treasury related funds at the short end of the yield curve.

Let us look at key flow drivers and start with inflows? Needless to say, the flows were once again driven in the September 2024 quarter by the debt funds at the short end of the yield curve. Money Market Funds saw net inflows in the quarter of ₹15,411 Crore, while Liquid Funds saw net inflows of ₹10,990 Crore, short duration funds saw net inflows of ₹8,398 Crore, and corporate bond funds saw net inflows of ₹7,968 Crore. The other categories that also saw net inflows in the September 2024 quarter include Gilt Funds ₹5,481 Crore, long duration funds ₹3,258 Crore, ultra short duration funds ₹2,621 Crore, and low duration funds ₹2,191 Crore. Other positive inflows in the quarter were relatively smaller.

In a quarter when net inflows were to the tune of ₹0.51 Trillion, the outflow categories were bound to be relatively limited; but 3 categories of debt funds stood out with negative flows in the September 2024 quarter. Banking & PSU Funds saw net outflows of (₹3,836 Crore), Floater Funds (₹1,579 Crore), and Credit Risk Funds (₹1,416 Crore). Clearly, the number of funds seeing redemptions and even the intensity of redemptions were much lower in the June and September 2024 quarters as compared to the prior quarters. The broad undertone of debt fund flows was more encouraging this quarter.

Total AUM of all active debt funds at the close of the September 2024 quarter bounced to ₹14.97 Trillion; compared to ₹14.13 Trillion, ₹12.62 Trillion, and ₹12.91 Trillion in the previous three sequential quarters. The share of debt fund AUM in overall open-ended MF AUM stands at 22.32% as of September 2024; compared to 23.11%, 23.64%, 25.42%, and 28.19% in the previous 4 sequential quarters. The AUM share of debt funds has come down in the September quarter despite the net inflows. This fall in AUM share of Debt funds has been progressive and can be attributed to the more than proportionate rise in the AUM share of equity and other equity related funds.

COLOUR OF EQUITY FUND FLOWS IN SEPTEMBER 2024 QUARTER

Flows into Equity Funds in the Sep-24 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Sep-24
₹2,25,867 Crore	₹1,16,095 Crore	₹1,09,772 Crore	₹31.10 Trillion

Data Source: AMFI

Net flows into equity funds in the September 2024 quarter stood at ₹1,09,772 Crore; compared to ₹94,222 Crore, ₹71,280 Crore, ₹52,491 Crore, and ₹41,963 Crore in previous 4 sequential quarters. However, one must also remember that in the last 5 months since April 2024, the equity fund net flows have been consistently above ₹34,000 Crore. The flows into equity funds even at higher levels has been sustained by a spike in SIP flow and a rise in NFO flows in equity funds. In fact, in the last 6 months, the SIP flows consistently stayed above ₹20,000 Crore. Also, the NFOs are picking up traction, averaging around ₹15,000 Crore on a monthly basis. The NFO flows are especially robust across equity fund categories like sectoral and thematic funds. The flows into small cap and mid-cap funds have slowed in recent months due to the plethora of restrictions placed by the regulator. However, retail enthusiasm for these funds has not flagged, and that is the good news.

The positive flows into equity funds were affirmative in the September 2024 quarter in all the classes of equity funds; except focused funds and ELSS funds which saw outflows. Even the previous quarter had seen a similar trend. Sectoral & Thematic funds led the way with quarterly net flows of ₹49,758 Crore. This was followed by multi-cap/flexi-cap funds at ₹22,849 Crore, large & mid cap funds at ₹9,514 Crore, small cap funds at ₹8,389 Crore, Mid-Cap Funds ₹7,829 Crore, Value funds at ₹5,863 Crore, and large cap funds at ₹5,076 Crore. Net flows in the quarter were negative in focused funds and ELSS funds while they were subdued in the remaining equity fund categories.

The total AUM of equity funds at the end of the September 2024 quarter stood at ₹31.11 Trillion; compared to ₹27.68 Trillion, ₹23.49 Trillion, and ₹21.79 Trillion in the previous 3 sequential quarters. The market share of equity fund AUM in overall AUM stood at 46.36% as of September 2024; compared to 45.26%, 43.99%, 42.92%, and 41.21% in the 4 sequential quarters prior to that. On the equity funds front, 2 trends were visible in the September quarter. Firstly, the alpha hunting in small and mid-cap funds was a lot more visible in the current quarter; although many investors are also preferring the multi-cap or flexi-cap route. Secondly, investors are now searching for alpha in sectoral and thematic funds rather than only mid-cap and small cap funds. That may not be a great trend to savour at market peaks, but then who is to argue with the ways of the market.

HYBRID FUND FLOWS IN SEPTEMBER 2024 QUARTER

Flows into Hybrid Funds in the Sep-24 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Sep-24
₹1,21,484 Crore	₹88,455 Crore	₹33,029 Crore	₹9.29 Trillion

Data Source: AMFI

In September 2024 quarter, hybrid fund saw relatively subdued net inflows of ₹33,029 Crore; compared to ₹47,605 Crore, and ₹44,964 Crore in the previous two sequential quarters. In our above definition of hybrid funds, we have added the solution funds to give a more comprehensive picture. How did the break-up of the hybrid fund flows look in September 2024. Multi-asset allocation funds (MAAF) dominated the quarterly hybrid flows at ₹10,023 Crore; while arbitrage flows fell to second place at ₹9,855 Crore. One of the big shifts in the current September quarter, compared to the previous two quarters was that the flows into arbitrage funds were relatively more subdued. In fact, the flows into arbitrage funds were less than one-third of the June quarter and this can be attributed to the narrowing of the arbitrage spreads and reduced arbitrage opportunities in the midst of directionless markets in the last few months. That was singularly responsible for the sharp fall in hybrid fund net inflows in the September 2024 quarter.

We have seen the top two hybrid funds in terms of quarterly flows; and let us now turn to the rest of the hybrid fund categories. Dynamic Asset allocation funds (BAFs) saw net inflows of ₹6,716 Crore in the September 2024 quarter, while the equity savings funds also saw net inflows in the quarter to the tune of ₹5,003 Crore. Even aggressive hybrid funds saw net inflows of ₹1,033 Crore in the quarter. Overall, 7 out of the 8 categories of hybrid funds (including solution funds) saw net inflows in the September 2024 quarter; while the only hybrid fund category to see net outflows was the Conservative Hybrid Funds. Total AUM of hybrid funds (including solution funds) at the end of September 2024 quarter stood at ₹9.29 Crore; compared to ₹8.60 Trillion, and ₹7.67 Trillion in the previous 2 sequential quarters. AUM share of hybrid funds plus solution funds in the overall AUM as of the close of September 2024 stood at 13.84%; compared to 14.06%, 14.36%, and 13.86% in the previous 3 sequential quarters.

PASSIVE FUND FLOWS IN SEPTEMBER 2024 QUARTER

Flows into Passive Funds in the Sep-24 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Sep-24
₹90,846 Crore	₹58,215 Crore	₹32,631 Crore	₹11.46 Trillion

Data Source: AMFI

Jack Bogle the celebrated founder of Vanguard famously said; “Why to look for a needle in a haystack, when you can buy the entire haystack.” While Vanguard is not yet active in India, Blackrock the world’s largest money manager is planning to make a big passive foray into India in a JV with Jio Financial. Unfortunately, Indian passive investors are still predominantly corporates, institutions and HNIs, with retail investors still to make a major splash in the space. That could change, once there are more passive products on offer. Let us now move to the Q2-FY25 data.

Passive funds had a relatively subdued quarter in September 2024 with net inflows of just ₹32,631 Crore; compared to ₹41,762 Crore in the June 2024 quarter. However, the September figure is still higher than the March 2024 quarter net inflow of ₹26,532 Crore into passive funds. Clearly, the momentum is coming back in favour of passive funds, although the trend has been relatively spasmodic. Here is how the various categories of passive funds saw traction in the September 2024 quarter. There was strong positive traction in index ETFs which saw net inflows of ₹16,262 Crore while index funds saw inflows of ₹13,227 Crore and gold ETFs saw net inflows of ₹4,182 Crore during the quarter ended September 2024. Global gold prices scaling above $2,650/oz has revived a lot of genuine interest among retail investors in gold ETFs. FOFs investing overseas saw net outflows of ₹1,040 Crore in the September 2024 quarter. In terms of AUM share, the passive funds had an AUM share of 17.08%; compared to 17.14%, 17.50%, and 17.21% in the last 3 sequential quarters. The share appears to have fallen in relative terms.

WHAT WE READ FROM THE SEPTEMBER 2024 AMFI QUARTERLY REPORT?

To sum it up, the September 2024 quarter, had some interesting takeaways for investors.

• Debt funds saw positive quarterly flows in the September 2024 quarter for the second time in a row. It looks like the debt fund flows are gradually dissociating themselves from the typical quarterly treasury flows.
• In the equity funds category, traditional alpha hunting in small and mid-cap funds has given way to more aggressive alpha hunting in sectoral and thematic funds. Only time will tell, whether this is a favourable trend or not at such stratospheric index levels.
• Last but not the least, new fund offerings (NFOs) are picking up traction in a big way, although the quick reading is that the NFOs in the market are dominated by the equity categories for now. But the, NFOs normally represent the flavour of the season.

To sum up, it has been an interesting quarter, where active equity funds continue to hold forth in terms of sustainable performance!