AUM Accretion August 2024 – Net flows versus Price Spike

12 Sep 2024 , 11:42 AM

AUM ACCRETION – HOW DID IT HAPPEN?

AMFI reports net assets under management (AUM) each month for mutual funds overall, and across each class of funds (equity, debt, hybrid, and passives). What triggers AUM accretion. Obviously, the assets under management (AUM) is a function of two variables; the net flows of funds and the price appreciation of the assets. Obviously, equity assets will see price appreciation when the index moves up and the sentiments are positive. On the other hand, debt funds see appreciation when the interest rates are headed lower (especially in the case of longer duration debt funds).

Here we break up the AUM accretion of each fund into the net inflow component and the capital price appreciation component. The capital appreciation component is clear; but how do net flows come in. It shows the net inflows into mutual fund (net of redemptions) from 3 major sources. These include lumpsum MF investments, SIP investments and new fund offerings (NFOs). Accretion in AUM, only led by price appreciation is not sustainable as it can reverse along with the prices. However, when the AUM accretion is supported partially by net inflows and partly by price appreciation; that is when it becomes more sustainable. That is what we will now do for each category of mutual funds in India.

AUM  ACCRETION STORY OF ACTIVE DEBT FUNDS

Active debt funds in India is a rather wide classification of funds that invest in debt. It has fund at the longer end of the yield curve like the 10-Year G-Sec funds and also at the shorter end like liquid funds and money market funds. There are also funds that play on credit ratings like the credit risk funds in search of higher returns, in contrast to Gilt funds, which are generally free of credit risk. Now, in India, we also have debt funds that carry fixed rate of returns and also debt funds that carry floating rates returns. It also includes debt funds that are rule based as well as debt funds that are discretion based; when it comes to a call on investments. However, this list of active debt funds excludes debt index funds and debt index ETFs; which is included under the header of passive funds.

Active Debt Market Funds	Net Inflow in the Fund	AUM Closing Value	AUM Accretion	Price Accretion	Price Move Dominance
Low Duration Fund	-390.39	1,05,234.56	209.00	599.39	286.79%
Medium Duration Fund	57.01	25,081.64	251.06	194.05	77.29%
Corporate Bond Fund	667.41	1,56,081.35	1,801.22	1,133.81	62.95%
Gilt Fund with 10-Y CONS-DUR	38.05	4,578.46	82.40	44.36	53.83%
Medium to Long Duration Fund	104.19	11,253.66	201.64	97.45	48.33%
Ultra Short Duration Fund	695.62	1,05,811.90	1,273.91	578.29	45.39%
Dynamic Bond Fund	577.19	33,964.49	894.78	317.59	35.49%
Liquid Fund	13,594.87	5,10,165.37	16,671.90	3,077.03	18.46%
Long Duration Fund	981.92	16,494.03	1,169.26	187.35	16.02%
Gilt Fund	1,902.09	35,550.97	2,248.90	346.81	15.42%
Short Duration Fund	4,359.50	1,10,740.04	5,115.98	756.49	14.79%
Money Market Fund	10,093.26	2,45,845.91	11,445.16	1,351.90	11.81%
Overnight Fund	15,105.93	86,100.26	15,618.10	512.17	3.28%
Banking and PSU Fund	-1,549.99	78,118.64	-1,004.45	545.54	-54.31%
Credit Risk Fund	-390.41	21,600.32	-189.28	201.13	-106.26%
Floater Fund	-676.88	53,028.89	-320.30	356.58	-111.33%
Grand Total	45,169.36	15,99,650.51	55,469.30	10,299.94	18.57%

Data source: AMFI (absolute figures are ₹ in Crore)

The table above breaks up the AUM accretion of each category of debt fund in August 2024 into the contributions of net flows and price impact. The funds have been ranked based on the dominance of the price impact on the AUM accretion on each category and overall. Here are some key takeaways.

• Overall, the net accretion in the AUM of debt mutual funds in August 2024 was to the tune of ₹55,469 Crore. This was composed of ₹45,169 Crore of fresh net inflows into debt funds while the balance ₹10,300 Crore came from price accretion. In short the contribution of price accretion was just 18.57% in August; yet higher than 8.68% in July 2024 while net inflows into debt funds contributed the balance 81.43%.
• Let us look at the categories of debt funds with the price accretion dominance. Low duration funds, medium duration funds, corporate bond funds and Gilt Funds with 10 years maturity saw the maximum contribution coming from price accretion in the overall AUM accretion. That is relevant as it shows some gains from lower yield expectations.
• Out of the 16 categories of debt funds, 13 categories saw positive contribution from price accretion and only 3 categories of funds saw negative contribution coming.

Out of the 16 funds, 4 funds saw more than 50% contribution from price appreciation, while 12 categories of debt funds saw double digit impact of price movement.

AUM  ACCRETION STORY OF ACTIVE EQUITY FUNDS

Active equity funds in India covers a wide range of thematic funds and diversified funds. Nowadays, it is thematic funds that have seen their AUMs surge. Today, the flow accretion has taken sectoral funds to the top of the flows list, while they have the lowest contribution from price increases. However, this list excludes equity index funds and equity index ETFs, which are included under the header of passive funds.

Active Equity Market Funds	Net Inflow in the Fund	AUM Closing Value	AUM Accretion	Price Accretion	Price Move Dominance
ELSS	-205.25	2,52,388.80	2,881.79	3,087.05	107.12%
Focused Fund	-83.52	1,50,439.51	2,277.91	2,361.43	103.67%
Value Fund/Contra Fund	1,728.01	1,90,473.82	4,842.28	3,114.27	64.31%
Large Cap Fund	2,636.86	3,68,401.21	7,370.07	4,733.21	64.22%
Flexi Cap Fund	3,513.16	4,29,311.51	9,145.54	5,632.38	61.59%
Small Cap Fund	3,209.33	3,19,967.57	6,479.39	3,270.06	50.47%
Mid Cap Fund	3,054.68	3,84,658.18	6,114.35	3,059.67	50.04%
Large & Mid Cap Fund	3,293.74	2,63,808.61	6,542.11	3,248.37	49.65%
Multi Cap Fund	2,475.06	1,73,103.02	4,737.16	2,262.10	47.75%
Dividend Yield Fund	499.91	31,516.51	832.53	332.62	39.95%
Sectoral/Thematic Funds	18,117.18	4,44,943.90	23,831.54	5,714.36	23.98%
Grand Total	38,239.16	30,09,012.63	75,054.68	36,815.52	49.05%

Data source: AMFI (absolute figures are ₹ in Crore)

The table above breaks up the AUM accretion of each category of equity funds in July 2024 into the contributions of net flows and price impact. The funds have been ranked based on the dominance of the price impact on the AUM accretion on each category and overall. It needs no genius to guess that price accretion will dominate. Here are some key takeaways.

• Overall, the net accretion in the AUM of equity mutual funds in August 2024 was almost equally distributed between flows and price appreciation. The total net AUM accretion was to the tune of ₹75,055 Crore. This was composed of ₹38,239 Crore of fresh net inflows into equity funds while the balance ₹36,816 Crore came from price accretion. In short the contribution of price accretion was 49.05%; sharply lower than the 77.64% share in AUM accretion in July 2024.
• Let us look at the categories of equity funds with the price accretion dominance. ELSS funds and Focused funds saw the maximum contribution coming from price accretion in the overall AUM accretion. Ironically, both these categories of equity funds saw negative fresh inflows in the month of August 2024. This price impact was visible in these two categories more due to the appreciation in the Nifty and Sensex as well as a rally in smaller indices. Dividend yield funds and sectoral / thematic funds saw the lowest contribution from price accretion; in the latter case due to very robust inflows.
• Out of the 11 categories of equity funds, all the 11 categories saw positive contribution from price accretion dominance with two categories offering over 100% contribution and 7 categories of mutual funds having a price accretion share of over 50%.

The importance of price appreciation in the AUM of equity funds has tapered in the current month compared to the previous month. However, equity funds continue to depend on market support to grow AUM on a consistent basis.

HOW AUM  ACCRETION HAPPENED IN HYBRID FUNDS

Hybrid funds in India offer a rather wide classification of funds that combine equity and debt in varying proportions. Some of them even use derivatives extensively to replicate debt returns with equity classification for tax purposes. Only arbitrage funds are more of a debt fund in terms of the nature of the fund. Rest are combinations of equity and debt with smaller portions of other asset classes too. Here is a quick dekko at price move dominance.

Hybrid and Retirement Funds	Net Inflow in the Fund	AUM Closing Value	AUM Accretion	Price Accretion	Price Move Dominance
Conservative Hybrid Fund	-186.84	28,385.74	78.39	265.24	338.34%
Aggressive Hybrid Fund	321.23	2,24,779.13	2,805.80	2,484.57	88.55%
Retirement Fund	132.75	30,394.84	491.44	358.70	72.99%
Children’s Fund	95.01	22,390.13	303.32	208.31	68.68%
Dynamic Asset Allocation/BAF	3,215.06	2,85,526.19	5,540.12	2,325.06	41.97%
Arbitrage Fund	2,372.13	1,92,708.72	3,359.40	987.27	29.39%
Multi Asset Allocation Fund	2,826.89	92,675.58	3,082.86	255.97	8.30%
Equity Savings Fund	1,456.83	36,990.33	1,418.54	-38.29	-2.70%
Grand Total	10,233.06	9,13,850.65	17,079.87	6,846.82	40.09%

Data source: AMFI (absolute figures are ₹ in Crore)

The table above breaks up the AUM accretion of each category of hybrid funds in August 2024 into the contributions of net flows and price impact. The funds have been ranked based on the dominance of the price impact on the AUM accretion on each category and overall. Solution funds have been included as part of the hybrid funds.

• Overall, the net accretion in the AUM of hybrid / solution funds in August 2024 was to the tune of ₹17,080 Crore. This was composed of ₹10,233 Crore of fresh net inflows into debt funds while the balance ₹6,847 Crore was through price appreciation, largely on the equity component of these hybrid funds. In short the contribution of price accretion was 40.09% in the AUM accretion in August 2024 while net inflows into hybrid funds contributed the balance 59.69%.
• Let us look at the categories of debt funds with the price accretion dominance. Conservative hybrid funds, aggressive hybrid, Retirement funds, and Children’s funds saw the maximum contribution coming from price accretion in the overall AUM accretion; at over 68% in each of these cases. Ironically, these categories of hybrid funds had seen tepid net inflows in August 2024. This price impact was visible in select hybrid funds where the equity exposure was the highest.
• Out of the 8 categories of hybrid & solutions funds, 7 categories saw positive contribution from price accretion dominance and only 1 categories of funds saw negative contribution coming. Surprisingly, Equity Savings funds saw negative price contribution, but that could be more due to the impact of derivatives. Even arbitrage funds saw robust price participation in the value accretion in August 2024.

If you leave out the equity savings funds at the bottom, 4 out of the remaining 7 categories of hybrid funds have seen more than 60% contribution coming from price accretion.

AUM  ACCRETION STORY OF INDEX FUNDS / ETFs

Index and other passive funds in India includes equity and debt index funds as well as other passive fund categories like gold funds, silver funds, and global fund of funds. These index funds are the ones benchmarked to the equity and debt market indices. Passive funds do not attempt to beat the index and create alpha; but are content with mirroring the index and reducing tracking error.

Index and Passive Funds	Net Inflow in the Fund	AUM Closing Value	AUM Accretion	Price Accretion	Price Move Dominance
Fund of funds investing overseas	-352.83	25,385.99	206.36	559.20	270.97%
GOLD ETF	1,611.38	37,390.04	2,934.89	1,323.51	45.10%
Index Funds	3,247.24	2,63,774.10	5,625.60	2,378.36	42.28%
Other ETFs	10,093.57	7,94,345.23	17,044.35	6,950.78	40.78%
Grand Total	14,599.36	11,20,895.36	25,811.21	11,211.85	43.44%

Data source: AMFI (absolute figures are ₹ in Crore)

The table above breaks up the AUM accretion of each category of passive funds and ETFs in August 2024 into the respective contributions of net flows and price impact. The funds have been ranked based on the dominance of the price impact on the AUM accretion on each category and overall. Here are some key takeaways.

• Overall, the net accretion in the AUM of index / passive funds in August 2024 was to the tune of ₹25,811 Crore. This was composed of ₹14,599 Crore of fresh net inflows into index / passive funds while the balance ₹11,212 Crore came from price accretion in equity and debt component of these funds. In short the contribution of price accretion was 43.44% in August 2024, compared to 68.41% in in July 2024 while net inflows into index / passive funds contributed the balance 56.56%.
• Let us look at the categories of index passive funds with the price accretion dominance. Interestingly, the funds investing overseas saw the maximum contribution of 270.97% from price appreciation. This was due to negative flows and positive performance of select global indices. Ironically, that was the only category with more than 100% contribution of fresh price appreciation in August 2024; but in all other cases, the contribution of price appreciation was over 40%. This time, price appreciation was visible across equity index funds, debt index funds and even gold funds.
• All the 4 categories of passive / index funds saw positive contribution from price accretion dominance with even the lowest contribution being above 40%.

Interestingly, in August 2024, while equity indices have gained marginally, the bond indices gained from falling bond yields while gold prices also gathered momentum on rate cut expectations. After all, when rates are cut, it reduces the opportunity cost of holding gold and makes gold more attractive to investors.

To sum up the price appreciation impact on the overall AUM accretion in August 2024 was lower than in July. This is also because flows were robust across categories. Also, in August 2024, the positive price impact was seen across asset classes, rather than only in equities. That is the positive takeaway from the August 2024 mutual fund flow numbers.