Equity fund flows improve, but debt funds sell off in May 2022

12 Jun 2022 , 10:48 PM

In April 2022, the buying in equity funds was largely subdued due to tepid markets. May 2022 was no different in terms of market volatility, but equity fund flows improved compared to April. However, debt funds heavily sold off and that could be largely attributed to the hawkish stance of the RBI. We will come back to the debt fund story later. NFO collections in May 2022 were NIL due to the freeze on fresh NFOs. However, the good news was on the SIP front, which scaled back above the Rs12,000 core mark in May 2022.

The overall MF AUM in May 2022 fell sharply to Rs37.22 trillion on the back of debt fund selling and absence of NFOs combined with value depletion of equities in a falling market. However, May 2022 was a volatile month amidst Fed hawkishness, rising inflation and geopolitical worries. Despite that, conviction in equity funds seems to have stayed.

Data Source: AMFI

The overall MF net outflows for April 2022 stood at Rs(7,533) crore. This was largely driven by open ended debt fund outflows of Rs(32,722) crore plus outflows of Rs(10,037) crore from close-ended fixed term plans (FTP). All categories of open-ended equity and hybrid funds saw net inflows in May 2022. The AUM mix as of May 2022 was Income Funds (35.53%), equity funds (35.77%), hybrid funds (12.97%) and passive & solution funds (14.97%). The residual 0.76% were close-ended funds.

In March 2022, the AUM of active equity funds had crossed that of debt funds. That lead was sustained in April 2022, although the gap narrowed. However, in May 2022, the gap has narrowed further with equity fund seeing huge value depletion amidst falling markets. Overall MF AUM grew 12.58% yoy from Rs33.06 trillion in May 2021 to Rs37.22 trillion in May 2022. Now hybrids, solution funds and passive funds account for 27.94% of the total AUM, emerging as a solid asset class.

Debt funds flows in May 2022 hit by RBI hawkishness

If April 2022 had seen a sharp revival of flows into debt funds, May 2022 once again saw net outflows from debt funds. Overall debt fund outflows were Rs(32,722) crore in May 2022. The selling was most prominent in low duration funds, short duration funds and money market funds, but even longer-end funds saw selling in the month of May 2022.

Let us first look at the debt fund categories that saw inflows in May 2022. The major inflows were only in two categories of funds. There were inflows of Rs15,071 crore into overnight funds and Rs1,777 crore into liquid funds. All the other categories of funds saw net outflows in the month of May 2022.

Let us now turn to the debt fund category-wise outflows in May 2022. These included money market funds Rs14,599 crore, short duration funds Rs8,603 crore, ultra-short duration funds Rs7,105 crore, low duration funds Rs6,716 crore, floater funds Rs5,286 crore, dynamic bond funds Rs2,414 crore, corporate bond funds Rs2,147 crore, medium duration funds Rs1,222 crore and Banking & PSU funds Rs1,121 crore. There were no real subtle trends as even the normally popular floaters saw heavy selling.

Equity Fund got a SIP boost in May 2022

The discouraging news is that equity AUM is sharply lower due to the depletion in market values. The good news is that equity fund inflows have been higher than April 2022 despite the absence of NFOs. The boost came largely from the SIP flows which got back to Rs12,286 crore in May 2022, ensuring steady equity fund inflows.

After witnessing record equity fund inflows of Rs28,464 crore in March 2022, net equity fund inflows were subdued in April 2022 at Rs15,890 crore. However, equity fund flows have bounced back to Rs18,529 crore in May 2022, which is rather appreciable amidst volatile markets. Robust SIP inflows made up for the flows, amidst NFOs drying up.

For the month of May 2022, not a single category of equity funds saw net outflows, despite the volatility in the markets and the uncertainty over interest rates and the geopolitical situation. The inflows in the month of May 2022 were largely triggered by the steady increase in SIP flows, indicating that investors were persisting with SIPs in tough markets.

Let us turn to specific inflows. During May 2022, Multi-cap funds plus flexi-cap funds led the way with inflows of Rs4,204 crore. Large cap funds collected Rs2,485 crore while the large & mid cap funds saw inflows of Rs2,414 crore and the Sector Fund continued to attract inflows to the tune of Rs2,292 crore. Among other categories of equity funds that saw meaningful inflows in May 2022 were mid-cap funds Rs1,832 crore, small cap funds Rs1,769 crore, focused funds Rs1,549 crore and value funds Rs1,158 crore.

An important data point for equity fund flows is also the folio accretion. As of the close of May 2022, the equity folios touching an all-time high level of 8.85 crore out of total mutual fund folios of 13.33 crore; or 66.40% share of overall folios.

Hybrid fund flows taper, but passive flows robust in May 2022

Hybrid funds saw outflows of Rs3,604 crore in March 2022 and inflows of Rs7,240 crore  in April 2022. The month of May 2022 saw hybrid fund inflows slowing to Rs5,123 crore. Balanced advantage funds continue to be favourites with inflows of Rs2,248 crore followed by aggressive hybrid funds at Rs1,381 crore and Arbitrage Funds at Rs1,007 crore. Other categories of hybrid funds also attracted smaller inflows in May 2022.

Passive fund continued their surge in May 2022 with inflows robust at Rs12,229 crore as investors looked for lower cost alpha. The passive surge was led by equity and debt index ETFs with inflows of Rs6,056 crore and index funds at Rs5,723 crore. Gold funds and Fund of Funds (FOFs) saw much smaller inflows. The big story in the last 2 years has been the inexorable rise of the passive fund categories in the overall AUM of mutual funds segment.

Summing up the May 2022 mutual fund flow story

On an overall basis, mutual funds saw net outflows of Rs(7,533) crore in May 2022, largely on account of outflows from open-ended and close-ended debt funds. All equity and hybrid fund categories saw robust inflows in May 2022. The big positive takeaway has been about SIP flows bouncing back to Rs12,286 crore in May 2022, a clear indication that SIPs are fast emerging as a stable onboarding point for retail investors.