How equity fund attractiveness panned out in FY22

21 Mar 2022 , 07:57 AM

As we approach the end of financial year 2021-22, the one thing that stood out about this year is the emergence of mutual funds as a veritable source of investing in volatile times. Not only that equity AUMs have picked up and SIPs are consistently above Rs11,000cr per month, but even the growth in folios and AUM over the previous year end is quite sharp.

While there is one more month to go for the fiscal year, looking at 11-months data gives a fairly accurate picture of how the equity mutual funds segment has grown in FY22, since the end of March 2021. The table below captures the gist of this growth.

Equity Fund Category	Mar-21 Folios (lakhs)	Feb-22 Folios (lakhs)	Folio Growth (%)	Mar-21 AUM (Rs. Cr)	Feb-22 AUM (Rs. Cr)	AUM Growth (%)
Multi/Flexi Cap	97.67	141.72	45.10%	1,78,617	2,59,125	45.07%
Large Cap	105.82	123.14	16.37%	1,78,324	2,16,795	21.57%
Large & Mid Cap	50.17	65.38	30.32%	76,428	1,03,409	35.30%
Mid Cap	66.61	85.40	28.21%	1,16,403	1,52,548	31.05%
Small Cap	50.56	76.48	51.27%	69,799	1,00,407	43.85%
Dividend Yield	5.03	5.62	11.73%	6,735	9,422	39.90%
Value/Contra	37.49	39.89	6.40%	61,150	75,627	23.67%
Focused	39.28	49.33	25.59%	68,603	92,851	35.35%
Sectoral	78.78	116.83	48.30%	98,080	1,43,325	46.13%
ELSS	126.04	135.41	7.43%	1,25,228	1,41,036	12.62%
Total	657.45	839.20	27.64%	9,79,367	12,94,545	32.18%

Data Source: AMFI

The above table looks at growth over 11 months in terms of AUM and folio numbers for various categories of equity funds.

Why did we look at AUM and folio numbers?

It would have been very simple for us to just look at AUM and calculate the growth over March 2021. However, there would be a shortcoming in this approach. The AUM is a value barometer over a period of time. Hence, it shows the accretion in fresh flows into equity funds as well as appreciation in the value of the equity funds. In a bull market, a lot of the AUM growth of equity funds is likely to be driven by the stock market appreciation. To eliminate that bias, we also look at folios.

Folios are account numbers and the unique folios give an approximate idea of the growth in fresh mutual fund investments. Of course, there is duplication because the same investor can have multiple folios but it is still a very good approximation. When the AUM is growing with growth in AUM, it signals that more investors are being added to the equity mutual funds fold. In the first 11 months of FY22, the number of equity mutual fund folios have grown by 27.64% while the AUM has grown by 32.18%. Clearly, a chunk of the growth in equity fund AUM has been driven by folios.

Equity Funds AUM growth story in FY22

If you look at the 11 months of FY22 i.e. from end of Mar-21 to the end of Feb-22, the total AUM of equity funds has grown by 32.18% from Rs979,367cr to Rs12,94,545cr. This has been partially driven by growth in folios (which we will look at separately) and partially by the equity value accretion in the markets. Let us now look at this growth category-wise.

The biggest growth in AUM value was seen in the case of flexi cap funds, sectoral funds and small cap funds. There are two things to note here. Firstly, we have combined multi-cap funds and flexi-cap funds under one header after SEBI modified rules for asset mix of multi-cap funds. The surge in flexi cap funds can also be attributed to the surge in NFOs in this segment to bridge the product gap.

The second big trend is that there has been an interest in stock specific themes outside the traditional indices. Most mutual funds are constrained by the 10% exposure limit and hence due to the Kurtosis effect, most equity funds were underperforming the index. That has led more investors towards alpha bets like small cap funds and sectoral funds. In fact, sectoral funds also witnessed a surge in NFOs due to the wider choice available for AMCs.

Folio numbers growth story of Equity Funds in FY22

The folios number growth of equity fund categories between Mar-21 and Feb-22 also throws up some interesting observations. Here are some key takeaways.

• Like the growth in AUM of equity funds, even the growth in folios has been dominated by multi-cap funds, small cap funds and sectoral funds. The trend was driven by a surge in NFOs in these categories and the search for alpha.
• There appears to be a lot of HNI interest building up in very specific categories of equity funds like dividend yield funds and value funds. Large investors have been looking at defensive equity options amidst volatility. That trend is evidenced by the AUM of these categories growing much faster than the growth in folio numbers.
• The one category that has been a laggard is the ELSS funds where the growth has been in single digits in terms of folios growth. Clearly, the middle class investors who used to gravitate towards ELSS funds, have not found it attractive in the absence of any special limit carved out for ELSS under the Section 80C category.

What exactly has been driving this rapid growth in equity fund folios in FY22. If there is one factor to describe this trend, it is the frenetic growth in systematic investment plans (SIPs). Let us look at the growth in SIP folios during this period. Between the end of Mar-21 and Feb-22, the total SIP folios in India have grown by 42.54% from 362.92 lakh folios to 517.29 folios. That, probably, best sums up the equity fund growth story in FY22.