How Mutual Fund AUMs have grown in the post-COVID phase?

20 Apr 2023 , 06:58 AM

March 2023 marks exactly 3 years since the post-COVID phase started in late March 2020. It was a bottom from where the economy and the stock markets bounced back sharply, as India emerged as the fastest growing large economy by a margin. In this entire growth story, one very key player was the growth in financial inclusion with more investors adopting the mutual funds route. Let us look at how the mutual fund AUMs have grown in the post COVID 3 year period.

Macro picture for MF AUM growth since COVID

The first quarter of calendar 2020 marked one of the worst periods economically and also from a stock markets point of view. Surprisingly, that also proved the pivot point for investors to adopt the mutual funds route more aggressively. Here is the macro view.

All Mutual Funds	AUM (Mar-23)	AUM (Mar-22)	AUM (Mar-21)	AUM (Mar-20)	3-Year Growth
OPEN ENDED SCHEMES	39,07,838	36,95,800	29,96,553	20,50,734	90.56%
CLOSED ENDED SCHEMES	34,193	60,883	1,46,211	1,75,469	-80.51%
Grand Total AUM	39,42,031	37,56,683	31,42,764	22,26,203	77.07%

Data Source: AMFI (figures in Rs crore)

As seen in the table above, the overall AUM of Indian mutual funds has gone up by 77%, partially helped by positive markets but also largely by flows. Since the COVID recovery started in March 2020, the AUM of open ended funds has grown by over 90% while the AUM of closed ended funds has shrunk to a fifth of the COVID levels.

Diverse trends emerge in debt funds AUM

Since the post COVID recovery started in March 2020, the AUM of debt funds are up 14.85%. That looks like a reasonable number, but that probably conceals the vastly diverse trends that are underlying this average. The table below is self-explicit.

Income / Debt Funds	AUM (Mar-23)	AUM (Mar-22)	AUM (Mar-21)	AUM (Mar-20)	3-Year Growth
Long Duration Fund	8,798	2,523	2,578	1,670	426.95%
Gilt Fund 10-year-D	3,760	1,261	1,500	941	299.38%
Gilt Fund	21,458	15,222	16,246	9,285	131.11%
Money Market Fund	1,08,468	1,14,219	89,758	57,017	90.24%
Floater Fund	52,989	80,632	65,436	32,490	63.09%
Dynamic Bond Fund	29,287	25,312	27,552	18,116	61.66%
Corporate Bond Fund	1,30,767	1,30,073	1,60,125	81,730	60.00%
Overnight Fund	95,626	1,03,071	71,009	80,174	19.27%
Banking and PSU Fund	80,517	93,383	1,19,559	72,476	11.10%
Ultra-Short Duration	79,123	87,948	91,998	72,226	9.55%
Low Duration Fund	86,693	1,12,745	1,29,767	81,371	6.54%
Liquid Fund	3,32,498	3,45,903	3,36,598	3,34,725	-0.67%
Short Duration Fund	91,239	1,15,856	1,45,662	93,444	-2.36%
Medium Duration Fund	27,091	32,983	31,740	28,290	-4.24%
Medium / Long Duration	8,895	10,055	10,390	9,805	-9.28%
Credit Risk Fund	24,776	27,772	28,308	55,381	-55.26%
Debt Funds Total	11,81,982	12,98,961	13,28,226	10,29,142	14.85%

Data Source: AMFI (figures in Rs crore)

Let us look at the funds that have shown de-growth in AUM over March 2020. There are 5 categories of funds with the worst being Credit Risk funds that have seen AUMs compress by over 55% since the COVID crisis. That is understandable as it also coincided with the Templeton credit risk fiasco. Also, in the last 3 years, the downside risks of credit risk funds have been ruthlessly exposed. The AUM has also shrunk in funds like the short duration funds and medium duration funds. Essentially, these are funds where the fund manager has good deal of discretion on asset allocation and that is not what investors appear to be comfortable with.

On the positive side, several categories of funds like long duration funds, 10-year gilt funds and gilt bond funds have seen a smart growth in AUM. One argument could be the low base, and that is largely true, but it also underlines a trend where investors are increasingly inclined to take price risk for the longer term for the safety of longer term returns. Interestingly, there is also substantial appetite for dynamic funds and corporate bond funds. However, the AUM of debt funds have fallen very sharply by 10% to 11% as compared to March 2021 and March 2022.

Equity funds saw a new breed of investors

It is not just that equity funds have been the stars of the post COVID recovery. The equity funds AUM has overall grown by a whopping 162%, but the good thing is that each of the equity classes have more than doubled their AUM since the post-COVID recovery started. For simplicity, we have combined flexi-cap and multi-cap funds since that would make them more comparable over a 3 year period.

Equity Funds	AUM (Mar-23)	AUM (Mar-22)	AUM (Mar-21)	AUM (Mar-20)	3-Year Growth
Dividend Yield Fund	13,994	9,819	6,735	3,282	326.39%
Small Cap Fund	1,33,384	1,06,857	69,799	35,832	272.25%
Sectoral/Thematic Funds	1,72,819	1,48,830	98,080	49,844	246.72%
Large & Mid Cap Fund	1,27,842	1,10,143	76,428	42,972	197.50%
Mid Cap Fund	1,83,256	1,59,928	1,16,403	65,805	178.48%
Multi / Flexi Cap Fund	3,09,020	2,80,363	1,78,616	1,13,908	171.29%
Focused Fund	98,673	96,710	68,603	39,072	152.54%
Value Fund/Contra Fund	90,584	78,774	61,150	39,460	129.56%
Large Cap Fund	2,35,760	2,26,191	1,78,324	1,13,541	107.64%
ELSS	1,51,751	1,47,841	1,25,228	74,791	102.90%
Equity Funds Total	15,17,082	13,65,456	9,79,367	5,78,508	162.24%

Data Source: AMFI (figures in Rs crore)

The bottom performer in the equity funds category is the ELSS category, and even that has grown AUM at 103% since the post-COVID recovery started. At the top, the dividend yield funds have grown due to the very low base. Also, much of the growth impetus came with the SBI Dividend Yield Fund NFO in March 2023. But there are other interesting stories emerging. For example, there is a strong preference for the alpha oriented stories like small-cap funds, mid-cap funds, thematic funds, sectoral funds etc. 

Investors are more willing to opt for specific equity stories and would rather prefer passive funds to play the generic diversified stories. That is evident in the large cap funds showing subdued growth in AUM since the COVID recovery. A new breed of young millennial investors is not only willing to take the right kind of risks, but also willing to play the passive game where necessary.

Hybrids were all about fancy ideas

Hybrid funds have gone through phases. First it was conservative hybrids, then it was BAFs (balanced advantage funds) and now it is multi-allocation funds. The table below captures the changing tastes in the world of hybrids.

Hybrid Funds	AUM (Mar-23)	AUM (Mar-22)	AUM (Mar-21)	AUM (Mar-20)	3-Year Growth
Multi Asset Allocation Fund	26,591	19,582	14,795	9,439	181.70%
Dynamic Asset Allocation / BAF	1,91,810	1,78,863	1,07,883	77,091	148.81%
Conservative Hybrid Fund	23,170	21,074	12,916	11,190	107.07%
Aggressive Hybrid Fund	1,53,899	1,48,519	1,23,075	1,00,990	52.39%
Equity Savings Fund	16,012	16,664	9,759	11,229	42.60%
Arbitrage Fund	67,435	95,217	74,530	52,210	29.16%
Hybrid Funds Total	4,78,917	4,79,918	3,42,957	2,62,150	82.69%

Data Source: AMFI (figures in Rs crore)

The overall growth of hybrid funds AUM is impressive at 82.7%, but it has been more about changing tastes in the market. In many cases, the AUMs have grown rapidly in a short span of time but have then saturated once the yields did not match up.

Finally, the big story of passive growth

The biggest story of post COVID recovery was the shift to passives. The lower cost and the index tracking yields were good enough for investors as can be seen from the table.

Passive Funds	AUM (Mar-23)	AUM (Mar-22)	AUM (Mar-21)	AUM (Mar-20)	3-Year Growth
Index Funds	1,67,517	68,676	19,164	8,089	1970.92%
Fund of funds (Overseas)	22,991	22,609	12,408	2,734	740.82%
Other ETFs	4,84,277	4,11,362	2,75,931	1,46,463	230.65%
GOLD ETF	22,737	19,281	14,123	7,949	186.03%
Passive Funds Total	6,97,522	5,21,928	3,21,626	1,65,235	322.14%

Data Source: AMFI (figures in Rs crore)

With passive AUMs growing 322% in the post-COVID period, this is possibly the biggest story. Low costs, index tracking returns and limited risk has made these funds a preferred choice for investors. The phenomenal growth in index funds is not just explained by equity index funds but debt index funds as well. The big story is that index ETFs have today emerges as the single category with the highest AUM in the entire mutual fund industry. That, perhaps, best sums up the story of the post-COVID recovery in mutual fund AUM.