Debt fund flows back with a bang in April 2023

12 May 2023 , 09:53 AM

They have typically seen outflows in most months. However, April 2023 was the clear exception with net inflows into debt funds standing at an impressive Rs1.07 trillion. However, inflows into equity funds and other categories of fund were relatively subdued, albeit still in positive inflow mode. Clearly, the combination of RBI calling a pause on rate hikes and attractive yields created a rush for locking into long term debt and for treasuries to push money back into short term funds. The month of April 2023 saw SIP inflows relatively subdued at Rs13,728 crore. Also, new fund offerings (NFOs) were subdued at Rs1,828 crore across 9 funds but dominated by the ICICI Pru Innovation Fund NFO.

Debt fund flows in April turn green after a long gap

Here is a quick look at how the monthly flows across fund categories panned out for the last 13 months. Solutions funds have been merged into hybrid funds.

Month	Debt Fund  Flows (Rs crore)	Equity Fund  Flows (Rs crore)	Hybrid Fund  Flows (Rs crore)	Passive Fund  Flows (Rs crore)	Total MF Flows (Rs crore)
Apr-22	54,757	15,890	7,352	15,888	72,847
May-22	(32,722)	18,529	5,293	12,229	(7,533)
Jun-22	(92,248)	15,498	(2,142)	13,110	(69,853)
Jul-22	4,930	8,898	(5,035)	14,271	23,605
Aug-22	49,164	6,120	(6,509)	15,069	65,077
Sep-22	(65,372)	14,100	(2,475)	13,623	(41,404)
Oct-22	(2,818)	9,390	(2,647)	10,261	14,047
Nov-22	3,669	2,258	(6,385)	10,394	13,264
Dec-22	(21,947)	7,303	2,418	15,398	4,491
Jan-23	(10,316)	12,547	4,681	3,955	11,373
Feb-23	(13,815)	15,686	630	6,488	9,575
Mar-23	(56,884)	20,534	(12,148)	26,804	(19,264)
Apr-23	106,677	6,480	3,511	6,945	121,435

Data Source: AMFI

Here are some quick takeaways. Debt funds saw net outflows in 8 out of the last 13 months but the April inflows more than offset the debt fund outflows of the last 4 months. Hybrid funds saw net outflows in 7 out of the last 13 months. The underlying theme was treasury selling as hybrid fund selling was led by the arbitrage funds. Both, active equity funds and passive funds saw net inflows in each of the last 13 months although it was relatively subdued in April 2023. Overall flows in April 2023 were the best in the last one year.

Out of the NFO flows of Rs1,828 crore across 9 NFOs, the ICICI Prudential Innovation Fund NFO alone accounted for Rs1,612 crore or 88% of the April 2023 NFO flow story. 

How has the overall AUM mix evolved in April 2023?

The month of April saw a sharp spike in the overall AUM, which went up 5.6% over March at Rs41.62 trillion. This is the first time ever that AUM of Indian mutual funds has crossed the Rs41 trillion mark. There has been a sharp spike in debt fund AUM, largely accounted for by the heavy inflows in April 2023. AUM of equity funds and passive funds also rallied, but that was more on the back of the strong rally in the stock markets in the last one month.

Month	Debt AUM  (Rs trillion)	Equity AUM   (Rs trillion)	Alternate AUM   (Rs trillion)	Total AUM  (Rs trillion)
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
Jan-23	12.38	15.06	11.87	39.62
Feb-23	12.30	15.02	11.83	39.46
Mar-23	11.82	15.17	12.09	39.42
Apr-23	12.99	15.85	12.47	41.62

Data Source AMFI

In a sense, the mix of the AUM shows a clear bias towards equities and alternatives in the last one year at the expense of the debt funds AUM. That situation has been substantially reversed in the month of April with a sharp spike in the AUM of debt funds. Fund flows into debt funds are betting on topping out of repo rates and the potential to lock in at high yields. That works out to be a double bonus. Here are the relative shares for March 2023 and April 2023.

Month	Active Debt Funds	Active Equity Funds	Hybrid  Funds	Passive Funds	Solution Funds	Close-ended Funds
Mar-23	29.98%	38.48%	12.15%	17.69%	0.82%	0.84%
Apr-23	31.21%	38.07%	11.88%	17.27%	0.81%	0.77%

April 2023 has been all about debt funds returning with a vengeance. The AUM share shift has been strongly favouring debt funds that saw its AUM share increase from 29.98% in March 2023 to 31.21% in April 2023. In relative terms, all the other categories of funds have seen their AUM share falling in April 2023. Let us now turn to the specific category flows.

Active Debt funds: They are literally back with a bang

Debt fund saw net inflows of Rs106,677 crore in the month of April 2023. The first month of the new fiscal FY24 saw funds flowing back into debt in a big way, led by short term funds. There were several categories of debt funds that saw big inflows in the month of April 2023. For instance, Liquid funds saw inflows of Rs63,219 crore, Money Market funds Rs13,961 crore, ultra short duration funds Rs10,663 crore, Overnight Funds Rs6,107 crore, low duration funds Rs5,463croer and Floater funds Rs3,911 crore. There were categories like credit risk funds and banking / PSU funds that saw outflows but they were really not very significant. The big story was the short duration funds attracting most of the treasury inflows back in the month of April 2023.

Active Equity Fund: Relatively subdued, but still positive

Equity fund flows saw net inflows of Rs6,480 crore in April 2023. Once again, all the equity fund categories, barring Focused Funds saw net inflows in March 2023. In terms of key categories seeing inflows; Small Cap funds saw inflows of Rs2,182 crore, mid-cap funds Rs1,791 crore, flexi/multi cap funds Rs757 crore, large & mid cap funds Rs739 crore and sectoral / thematic funds Rs615 crore.

Despite the sharp rally in the equity markets, SIP flows have stayed robust, albeit lower than the March 2023 levels. Also, the NFOs were sharply lower than previous months and that also had an impact on the overall equity fund flows. While equity fund flows were still on the positive side, it was a month that truly belonged to the debt funds.

Hybrid flows recover, passive flows modestly positive

Overall, the combination of hybrid funds and solution funds got net inflows of Rs3,511 crore. Among the hybrid funds, the bulk of the buying was accounted for by the treasury operations. Arbitrage funds saw net inflows of Rs3,716 crore in April 2023 and accounted for almost the entire inflows into hybrid funds. It was again a case of treasury shift in April. While multi-asset allocation funds saw inflows of Rs445 crore, the BAFs saw outflows of Rs432 crore and conservative hybrids saw outflows of Rs205 crore.

Passive funds again had a relatively modest month in April 2023 with net inflows of Rs6,945 crore. This was driven by inflows of Rs6,791 crore into index ETFs, which includes the equity and debt index ETFs. Flows into other categories of passive funds were relatively muted.

What is the gist of the mutual fund flows story for April 2023? Active debt funds are back with a bang. They not only saw inflows of more than Rs1.06 trillion in April 2023 but also increased their AUM share by 123 basis points over March 2023. Debt funds was the big story, even as the equity fund flows story was modestly positive. Things should improve for equities as the pace of SIPs and NFOs pick up in the coming months. April clearly belonged to active debt fund flows.