Equity fund inflows taper, but MF AUM crosses Rs. 49 trillion in November 2023

11 Dec 2023 , 07:01 AM

Mutual fund flow story of November 2023

There were two stories in the mutual funds space in the month of November 2023. Firstly, the SIP flows continued to be robust and equity fund flows stayed robust, albeit lower on a sequential basis. Secondly, the AUM of the Indian mutual funds segment crossed Rs49 trillion for the first time ever. The spike in the latest month has been very sharp and that is largely led by the rally in the Nifty. NFOs were relatively tepid at Rs2,136 crore, largely dominated by the NFOs of sector funds and flexi-cap funds. But the month was not about flows but about the sharp rise in AUM. At Rs49.05 trillion, the overall AUM of Indian mutual funds has finally scaled to $590 billion, and withing touching distance of $600 billion.

Needless to say, the equity flows and the hybrid flows have continued to remain robust, even as interest in passive funds continued to wane as seen in the month of November 2023. However, the SIP flows for November 2023 on a gross basis stood at Rs17,073 crore mark, a level that is substantially above the pre-COVID levels. The last two milestones of Rs16,000 crore and Rs17,000 crore was achieved in record time of 2 months each and that shows how the momentum has picked up on SIP flows. However, debt funds continued to remain under pressure with corporate bond funds and ultra short duration under stress. 

Who dominates the Trillion Rupee club

The trillion rupee club is an exclusive club of fund categories that have more than Rs100,000 crore in AUM. Out of the 16 active debt schemes, a total of 5 categories were in the trillion rupee club. This includes liquid funds, low duration funds, money market funds, short duration funds and corporate bond funds. Ironically, the only debt fund category that would classify as a long maturity fund in this club is the corporate bond fund category. 

What about the active equity funds? Here is where there is the biggest concentration in the trillion rupee club. A total of 10 out of the 11 equity funds had AUMs in excess of Rs1 trillion with only dividend yield funds having an AUM of less than Rs1 trillion. In fact, five of the equity fund categories viz., large cap funds, mid cap funds, small cap funds, sectoral/thematic fund and flexi-cap funds are already in the Rs2 trillion club. Most of the value accretion in AUM is clearly coming from the active equity funds.

What about the hybrid and solution funds. Out of the 8 funds in this category, there are 3 funds in the Rs1 trillion club with Dynamic Asset Allocation Funds (BAFs) already in the Rs2 trillion club. In the passive funds category, 2 out of the 4 fund categories viz., index funds and index ETFs are already in that category. Incidentally if you take all the funds across the board, then index ETFs lead the way with AUM of Rs5.81 trillion, followed by liquid funds at Rs4.16 trillion and flexi cap funds at Rs3.06 trillion.

Debt flows taper in Nov-23, but equity and hybrids hold up

Here is a quick look at how the monthly flows across fund categories panned out for the last 13 months. Solutions funds are 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)
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
May-23	45,959	3,240	6,193	4,487	57,420
Jun-23	(14,136)	8,638	4,611	2,057	(2,022)
Jul-23	61,440	7,626	12,541	860	82,046
Aug-23	(25,873)	20,245	17,273	4,535	16,181
Sep-23	(101,512)	14,091	18,650	4,720	(66,192)
Oct-23	42,634	19,957	10,250	7,746	80,529
Nov-23	(4,707)	15,536	13,723	2,234	25,616

Data Source: AMFI

Here are some quick takeaways. Debt funds flows were negative in 4 out of the last 6 months and in 8 out of the last 12 months. There is selling pressure. After inflows in October, debt funds against saw outflows of Rs4,707 crore in November 2023. The year started positively for debt funds with strong inflows in April and May, but after that the sentiments have been generally negative, except for the brief respite in October 2023. 

Hybrid fund flows are robust, but that is more due to the predominance of arbitrage fund inflows and the growing interest in multi-asset funds as a naturally diversified asset class. There is a lot of short term funds shifting from liquid funds to arbitrage funds in search of higher returns and lower tax incidence. Looking at the sustained flows into arbitrage funds, that trend looks all set to stay. The rising demand for stocks from FPIs and the volatility is only making arbitrage returns more attractive for parking short term funds.

How overall AUM mix evolved in November 2023?

The month of November 2023 saw a very sharp uptick in the overall AUM, which surged from Rs46.72 trillion to Rs49.05 trillion over the previous month. This also marks the highest ever closing AUM for mutual funds in India. The equity AUM growth in the month of November 2023 was especially sharp as the Nifty rallied very sharply in the month. In fact, the accretion in AUM in November 2023 was less about flows and more about value accretion due to the Nifty and Sensex scaling new highs. 

In fact, since the start of this fiscal year FY24, the AUM of mutual funds is up 24.43%, largely explained by the frenetic rally in equities, but supported by positive equity fund inflows. The AUM surge of 4.99% in November over October, is one of the best single-month accretion seen in the last two years. Here is the story of how the AUM across fund categories evolved in last one year. Please note that Rs1 trillion is equal to Rs1,00,000 crore.

Month	Debt AUM  (Rs trillion)	Equity AUM   (Rs trillion)	Alternate AUM  (Rs trillion)	Total AUM  (Rs trillion)
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
May-23	13.49	16.57	12.85	43.20
Jun-23	13.48	17.43	13.22	44.39
Jul-23	14.17	18.25	13.69	46.38
Aug-23	14.00	18.60	13.74	46.64
Sep-23	13.05	19.08	14.17	46.58
Oct-23	13.54	18.79	14.10	46.72
Nov-23	13.58	20.33	14.87	49.05

Data Source AMFI

For November 2023, the debt fund AUM inched up marginally to Rs13.58 trillion compared to Rs13.54 trillion at the close of last month. On a yoy basis, the AUM of debt funds is up 8.04%. However, the equity fund AUM surged to Rs20.33 trillion compared to Rs18.79 trillion at the close of last month. On a yoy basis, the AUM of active equity funds is up a whopping 30.49%. The equity fund AUM has been the clear beneficiary of the frenetic growth in the indices over the last one year. Alternate asset categories saw AUM grow by 24.64% yoy, but this story was largely driven by hybrid funds in the current year. Let us also look at how the AUM share of different categories of funds changed in last 5 months

Month	Active Debt Funds	Active Equity Funds	Hybrid  Funds	Passive Funds	Solution Funds	Close-ended Funds
Jul-23	30.56%	39.34%	11.88%	16.84%	0.81%	0.56%
Aug-23	30.01%	39.88%	12.03%	16.62%	0.81%	0.64%
Sep-23	28.02%	40.97%	12.62%	16.97%	0.82%	0.60%
Oct-23	28.99%	40.23%	12.58%	16.80%	0.81%	0.59%
Nov-23	27.68%	41.46%	12.72%	16.78%	0.82%	0.55%

If you take a five months perspective, share of active equity fund AUM and the share of hybrid fund AUM has gained substantially at the cost of active debt fund AUM share. However, the share of AUM of passive funds and solution funds has remained almost static over the last 5 years. It indicates that what the passive equity index funds have gained by way of market appreciation in this period has been offset by tepid flows. 

Active Debt funds: Most debt fund witness net selling

Debt funds saw net outflows of Rs4,707 crore in November 2023 This is the eighth time in the last 12 months that debt funds have seen negative flows. The inflows were into money market funds and floater funds with most of the other key debt funds seeing negative or neutral flows in November 2023. For the month of November 2023, let us first look at the few categories that saw net buying. Money market funds saw net inflows of Rs865 crore, while floater funds saw net inflows of Rs648 crore and banking & PSU funds saw net inflows of Rs305 crore for November 2023. Other inflows were relatively small.

Among the debt fund categories that saw net outflows in November 2023 ultra short duration funds saw outflows of Rs1,866 crore, corporate bond funds Rs1,578 crore, low duration funds Rs968 crore, liquid funds Rs645 crore, and overnight funds Rs484 crore. Most of the other debt fund categories also witnessed net selling in November 2023, but there relatively much smaller.

Active Equity Funds: net inflows taper in November 2023

For the month of November 2023, all the categories of equity funds saw positive flows. In the last few months, we have seen consistent net selling in large cap funds, focused funds and in ELSS. That did not happen in November, although the net equity fund flows at Rs15,536 crore was lower than October. Large cap funds have seen flows taper substantially in the last couple of years as they have struggled to outperform the indices. Small cap funds once again dominated the inflows in November, something that has become a norm. Let us now turn to the actual flows into equity funds in November 2023.

Small Cap funds saw net inflows of Rs3,699 crore, Flexi/Multi Cap funds Rs3,381 crore, mid-cap funds Rs2,666 crore, sectoral / thematic funds Rs1,965 crore, large & mid-cap funds Rs1,847 crore, and value funds Rs1,252 crore.  Much of the inflow of thematic funds came from NFOs and it looks like the flows into equity fund would really see traction only when the NFO market bounces back. If you combine the major categories getting inflows like small cap funds, flexi cap fund and mid-cap funds; the focus is entirely on alpha hunting.

Hybrid flows flatter, as passive flows struggle

Overall, the combination of hybrid funds and solution funds got net inflows of Rs13,723 crore and is emerging as a major flow driver. However, the macro picture glosses over the fact that the 2 fund categories dominated total flows in November 2023 and accounted for 85% of the net flows into this category. The inflow story in the hybrid category was all about arbitrage funds with net inflows of Rs9,404 crores and multi-asset allocation funds with net inflows of Rs2,589 crore. However, even equity savings funds saw inflows of Rs880 crore while BAFs and aggressive hybrids also saw net inflows. It looks like arbitrage fund are taking away a big share of the liquid fund space.

Passive funds had a relatively tepid month in November 2023 with net inflows lower at Rs2,234 crore; sharply lower than last month. This was driven by inflows of Rs1,353 crore into index funds, Rs834 into index ETFs and Rs333 crore into gold funds. Fund of Funds (FOFs) saw very marginal inflows in the month of November 2023.

Three takeaways from the November 2023 MF story

How do we sum up the mutual fund flow story for November 2023? There are 3 key takeaways. Firstly, debt funds continue to struggle and investors don’t seem too positive about falling interest rates. Secondly, if you summarize the story of mutual fund flows, the three-letter word that stands out is “SIP.” That has made all the difference to flows and to sustained interest in mutual funds. Lastly, hybrid funds are emerging as the new darling of mutual fund investors, as investors are getting neutral towards passive funds.