How does the 3 year growth in mutual fund AUM look?

22 Mar 2024 , 11:30 AM

WHY WE ARE LOOKING AT 3 YEAR MF AUM GROWTH?

Intuitively, anyone can say that the assets under management of Indian mutual funds have grown at a rapid pace over the last 3 years post COVID. However, a lot of interesting insights come up when we look at these numbers on a granular basis. Most of our AUM growth analysis is either on MOM basis or on a YOY basis. Both run the risk of being too short-term in nature and also being too vulnerable to the base effect. Hence, a better way would be to look at the CAGR (compounded annual growth rate) of AUM over the last 3 years. Why have we looked at the last 3 years. This is the phase that shows the post-COVID recovery.

During the COVID, the prices saw substantial damage and the overall growth of the Indian economy also fell sharply. However, this also laid the base for a stunning growth in mutual fund AUM and in mutual fund folios. For instance, if you just look at the macro picture, the AUM of mutual funds overall has grown by 20% CAGR over the last 3 years. This is despite the fact that debt fund AUM has been virtually flat; so, most of the growth has come from equity funds, hybrid funds, and passive funds. One risk in AUM comparison is that it reflects flows and market accretion. While that is true, over a 3 year period, the picture is fairly accurate. This growth shows the realization among Indian investors that when it comes to gaining out of mutual funds, it is time that matters, and not timing!

MF AUM MACRO LEVEL – HOW 3 YEAR GROWTH PANNED OUT

Here we look at the AUM growth of the mutual fund segment overall between February 2021 and February 2024. This approximately corresponds with the post-COVID period. The table below captures the AUM numbers along with CAGR growth.

MF Macro Picture	AUM (FEB-24)	AUM (FEB-23)	AUM (FEB-22)	AUM (FEB-21)	CAGR Growth
AUM – Open Ended Funds	54,24,607	39,14,716	36,95,157	30,15,596	21.62%
AUM – Closed Ended Funds	29,607	31,541	61,139	1,48,518	-41.58%
AUM – Overall Mutual Funds	54,54,214	39,46,257	37,56,296	31,64,114	19.90%

Data Source: AMFI (Absolute figures are ₹ in Crore)

Overall, the AUM of Indian mutual funds has grown at a CAGR of nearly 20% between February 2021 and February 2024. Here are some granular takeaways.

• Ther is a contrasting performance between the open ended funds and the close ended funds in the last 3 years. While the AUM of open ended funds has grown at a CAGR of 21.62%, the AUM of close-ended funds has actually contracted at a negative CAGR of -41.58%. The AUM of close ended funds in Feb-24 is less than one-fifth of the AUM as of February 2021.
• The sharp fall in the closed ended funds is largely due to the growing interest in SIPs which are only consistent with open ended funds. Also, the close-ended funds were largely led by fixed maturity plans (FMP). However, with unattractive yields on debt and unfavourable tax treatment, the close-ended funds have been dwindling consistently.

Overall, the CAGR AUM of the mutual fund segment as a whole was led by the open ended funds. It has been a mix of value accretion and folio accretion in this period.

ACTIVE DEBT FUND AUM – HOW 3 YEAR GROWTH PANNED OUT

Here we look at the AUM growth of the active debt fund segment overall between February 2021 and February 2024. This approximately corresponds with the post-COVID period. The table below captures the AUM numbers along with CAGR growth of each category.

Active Debt Schemes	AUM (FEB-24)	AUM (FEB-23)	AUM (FEB-22)	AUM (FEB-21)	CAGR Growth
Long Duration Fund	11,885	4,081	2,550	2,493	68.29%
Gilt Fund 10 year duration	4,649	1,797	1,335	1,556	44.04%
Gilt Fund	27,580	16,795	15,691	16,672	18.27%
Money Market Fund	1,56,455	1,18,620	1,19,233	96,410	17.51%
Liquid Fund	5,17,404	3,86,490	3,89,305	3,55,554	13.32%
Dynamic Bond Fund	31,509	23,365	26,199	25,421	7.42%
Overnight Fund	67,725	1,03,091	1,15,555	65,655	1.04%
Medium to Long Duration	10,529	8,664	11,103	10,738	-0.65%
Corporate Bond Fund	1,46,747	1,14,845	1,41,569	1,56,231	-2.07%
Ultra Short Duration Fund	92,071	88,805	90,437	98,260	-2.15%
Floater Fund	53,216	56,324	87,596	62,002	-4.97%
Medium Duration Fund	26,158	25,867	33,842	30,879	-5.38%
Credit Risk Fund	23,305	24,410	28,052	28,152	-6.10%
Short Duration Fund	1,04,797	90,970	1,24,564	1,53,714	-11.99%
Low Duration Fund	95,696	92,215	1,21,217	1,45,362	-13.01%
Banking and PSU Fund	80,250	73,324	1,01,148	1,25,283	-13.80%
Total Active Debt Fund (AUM)	14,49,974	12,29,660	14,09,397	13,74,384	1.80%

Data Source: AMFI (Absolute figures are ₹ in Crore)

The compounded growth of active debt fund AUM was a tepid 1.80% over the last 3 years. Here are some key takeaways from the numbers.

• Out of the 16 categories of active debt funds, a total of 7 funds showed positive CAGR over the last 3 years while the remaining 8 funds showed negative CAGR over the last 3 years. The growth range has been quite high for the category.
• The big 3 gainers in terms of debt fund CAGR over the last 3 years are all outcomes of low base. For instance, long duration funds grew 68.3%, Gilt Funds – 10 year duration at 44.1% and Gilt Fund sat 18.3%. In all these cases, the AUM base was quite small. The only two debt fund categories that showed double digit CAGR growth in the last 3 years, despite a high base, were money market funds and liquid funds. The major interest in debt funds has continued to be only in the very short end of the yield curve.
• On the downside, 3 categories of funds showed negative CAGR contraction in double digits over the last 3 years. These include Banking & PSU Funds, low duration funds and short duration funds. Credit risk funds have also seen negative growth. The broad theme appears to be that investors have stayed off funds where the scope of lower quality debt is quite high. This could be attributed to the Templeton experience in 2020.

The growth has been in short term yield funds and in longer duration funds where asset quality is not an issue. However, funds that have seen asset quality issues in the past have seen negative growth in the last 3 years.

ACTIVE EQUITY FUND AUM – HOW 3 YEAR GROWTH PANNED OUT

Here we look at the AUM growth of the active equity funds overall between February 2021 and February 2024. This approximately corresponds with the post-COVID period. The table below captures the AUM numbers along with CAGR growth and the granular growth data.

Active Equity Schemes	AUM (FEB-24)	AUM (FEB-23)	AUM (FEB-22)	AUM (FEB-21)	CAGR Growth
Multi Cap Fund	1,22,258	66,875	42,784	20,158	82.37%
Small Cap Fund	2,49,071	1,31,568	1,00,407	67,764	54.33%
Dividend Yield Fund	23,618	10,183	9,422	6,599	52.96%
Sectoral/Thematic Funds	2,87,899	1,68,775	1,43,325	95,364	44.53%
Large & Mid Cap Fund	2,00,833	1,26,648	1,03,409	74,937	38.90%
Mid Cap Fund	2,95,683	1,83,246	1,52,548	1,13,515	37.59%
Value Fund/Contra Fund	1,47,098	89,510	75,627	60,815	34.23%
Flexi Cap Fund	3,44,170	2,40,791	2,16,341	1,56,220	30.12%
Focused Fund	1,26,471	99,014	92,851	67,502	23.28%
Large Cap Fund	3,05,941	2,35,168	2,16,794	1,77,549	19.89%
ELSS	2,09,354	1,49,998	1,41,036	1,22,936	19.42%
Total Active Equity Fund (AUM)	23,12,396	15,01,778	12,94,545	9,63,358	33.89%

Data Source: AMFI (Absolute figures are ₹ in Crore)

Interestingly, all the 11 categories of equity funds saw positive growth in CAGR AUM over the last 3 years. The equity fund category overall saw growth in CAGR to the tune of 33.9%, which can be largely attributed to the frenetic rally post COIVD. Here are key takeaways.

• At the top is multi-cap funds, but that may be slightly misleading due to the low base it started off with. Multi-cap funds were split into multi-cap funds and flexi-cap funds with most of the erstwhile AUM gravitating towards the flexi-cap funds. However, the CAGR AUM growth of multi-cap funds has been much higher than flexi-cap funds as investors appear to prefer the structured multi-cap funds over the leeway of flexi-cap funds.
• In terms of the best growth over the last 3 years, it was not surprising that small cap funds, dividend yield funds and sectoral / thematic funds were the most preferred categories of equity funds as evidenced by the CAGR growth in AUMs. Dividend yield funds appearing at the top was more of a base effect, but small cap funds and thematic funds were driven by robust demand. Also, these are the categories that saw maximum number of NFOs in this period and fund houses rushed to fill the gap.
• On the downside, the pressure was visible in large cap funds and ELSS funds. In the large cap category, a good deal of investor demand shifted to the lower cost passive funds like index funds and index ETFs. On the ELSS front, with the new tax regime introduced, the attractiveness of ELSS as an investment class has been gradually coming down.

However, the good news is that all categories of equity funds showed positive CAGR growth over the last 3 years with CAGR growth in this period ranging from 82.4% on the higher side to 19.4% on the lower side.

HYBRID FUND AUM – HOW 3 YEAR GROWTH PANNED OUT

Here we look at the AUM growth of the hybrid fund segment overall between February 2021 and February 2024; the post-COVID period. For the sake of completeness, we have combined solution funds and hybrid funds into a single category, due to the similarity of their structure. The table below captures the AUM numbers along with CAGR growth.

Hybrid Fund Schemes	AUM (FEB-24)	AUM (FEB-23)	AUM (FEB-22)	AUM (FEB-21)	CAGR Growth
Multi Asset Allocation Fund	64,695	25,948	18,933	14,788	63.55%
Equity Savings Fund	28,651	16,445	16,572	9,804	42.97%
Dynamic Asset Allocation/BAF	2,45,822	1,91,440	1,73,639	1,06,473	32.17%
Conservative Hybrid Fund	26,702	22,716	20,600	12,513	28.75%
Arbitrage Fund	1,50,769	77,229	1,01,515	71,858	28.02%
Retirement Fund	24,924	17,811	15,931	13,375	23.06%
Childrens Fund	18,852	14,170	12,770	10,692	20.81%
Aggressive Hybrid Fund	1,93,739	1,53,637	1,44,281	1,22,779	16.42%
Total Hybrid Funds (AUM)	7,54,153	5,19,396	5,04,242	3,62,282	27.68%

Data Source: AMFI (Absolute figures are ₹ in Crore)

Hybrid funds have seen a lot of traction in the last few years, as is evident from the 27.7% CAGR growth in hybrid fund AUM overall in the last 3 years. Here are some key takeaways from the CAGR growth in the hybrid funds.

• Not surprisingly, the growth has been led by multi-asset allocation funds and equity savings funds. Both are essentially asset allocation funds. Although one can argue that they have grown off a small base, even the folio growth has been robust, hinting that investors are increasingly looking at such allocation funds.
• Dynamic allocation funds or Balanced Advantage Funds saw smart CAGR growth in AUM, but this can be largely attributed to the slew of IPOs in 2021 and 2022. That pace has slowed in recent months, but the discretionary category still attracts interest. Arbitrage fund growth has been robust, but it is more of a treasury fund that has gained in the last few months from investors preferring arbitrage funds over liquid funds amidst the volatility in the equity markets and the favourable tax treatment of arbitrage funds.
• Solution funds have struggled to grow, despite the low base while aggressive hybrids have not been the preferred choice among hybrids in the last 3 years.

Once again, all categories of hybrid funds saw positive growth in the last 3 year CAGR, although the CAGR growth ranged from a high of 63.6% to a low of 16.4%. Hybrids are surely emerging as a distinct assert class in India.

PASSIVE FUND AUM – HOW 3 YEAR GROWTH PANNED OUT

Here we look at the AUM growth of the passive fund segment overall between February 2021 and February 2024. This category showed the best growth in the last 3 years in terms of CAGR; even better than active equity funds. The table below captures the AUM numbers along with CAGR growth.

Passive Fund Schemes	AUM (FEB-24)	AUM (FEB-23)	AUM (FEB-22)	AUM (FEB-21)	CAGR Growth
Index Funds	2,09,787	1,38,814	54,737	16,867	131.69%
Other ETFs	6,44,835	4,81,776	3,91,436	2,73,886	33.03%
Fund of funds investing overseas	24,932	21,893	22,072	10,716	32.51%
GOLD ETF	28,530	21,400	18,728	14,102	26.48%
Total Passive Funds (AUM)	9,08,084	6,63,883	4,86,974	3,15,571	42.24%

Data Source: AMFI (Absolute figures are ₹ in Crore)

For the last 3 years, the AUM of passive funds grew at a CAGR of 42.24% overall, making it the best growth category in terms of 3-year CAGR returns. Here are the key takeaways.

• The best growth category in passive fund and also across categories was index funds, which grew at a CAGR of 131.7% over the last 3 years as it transitioned from an AUM of ₹16,867 Crore to an imposing ₹2,09,787 Crore. This includes equity index funds and debt index funds, investing in India and abroad. This category was triggered by a shift from large cap equity funds and the growing charm of passive fund investing in India.
• Over the last 3 years, the index ETFs category has seen Aum grow from ₹2.74 Trillionto ₹6.45 trillion. At the current AUM, the index ETF category is the largest among all fund categories in India. The 33% CAGR growth in the index ETF category is across ETFs on equity and bond indices. However, this growth has come on a much higher base.
• The other 2 passive categories of international FOFs and Gold/Silver ETFs also showed CAGR growth of 32.5% and 26.5% respectively. One can argue that the base was small, but the interest in these products is growing.

Like equity fund and hybrid funds; even passive funds saw positive CAGR growth across all funds in the category. Passive funds also have the distinction of the only category to grow at over 100% CAGR (index funds) and also the category having the highest AUM class (index ETFs). Whichever way you look at it, one thing Is certain; mutual funds as an asset class have surely come of age in India, and retail investor are leading that charge.