Key mutual fund trends observed in April 2023

17 May 2023 , 12:59 PM

These trends pertain to the overall AUM of mutual funds, the mix of the AUM and the mix of the investors. It also provides additional analytics like the ageing of equity fund investments. Here are some key trends observed in mutual fund data for the month of April 2023.

Key Trends in Mutual Funds – Industry level

The industry level mutual fund trends as of April 2023 are at a macro level and have more to do with the colour and direction of the flows.

• Average assets under management (AAUM) of all mutual fund schemes touched a life-time high of Rs41.53 trillion as of the close of April 2023. That translates into dollar AUM of $505 billion. On a yoy basis, the mutual fund AUM has grown by 6.79% compared to April 2022. Interestingly, most of this accretion came in the month of April 2023.

   

• In the last couple of years, we have seen a gradual shift in the AUM from active debt to active equity. To an extent, April 2023 marked a marginal reversal back to the old trend. In addition, there has also been a shift towards passive schemes. The data as of April 2023 has only reinforced that trend. Between April 2022 and April 2023, the market share of equity oriented funds (including aggressive equity balanced) has gone up further from 49.6% to 50.9% of the overall AUM mix. During this period, the share of active longer period debt funds fell from 22.4% to just 20.5% while liquid funds fell from 16.2% to 15.6%. The inflow of Rs1.07 trillion into debt funds in April 2023 was a key factor in giving a boost to debt funds over equity funds, compared to March 2023. Interestingly, this period saw passive ETFs and FOFs spruce up their share of AUM further from 11.8% to 13.0%.

   

• The combination of a new breed of millennial investors entering mutual funds and a surge in the number of SIPs has been boosted individual participation in mutual funds. For April 2023, even the numbers corroborate that assumption. For example, between April 2022 and April 2023, the share of individuals in the overall AUM composition has gone up from 55.4% to 57.6%. Correspondingly, the share of institutions and corporates has fallen from 44.6% to 42.4%.

   

• How much share have investors allocated to each of the asset categories of mutual funds. For instance, individual investors have a share of just 43% in debt schemes and 11% in money market schemes. That is understandable since these are largely treasury products. However, individual investors have a whopping 89% share of equity fund AUM. What is disappointing, is that individual share of ETFs and FOFs is just 11% of AUM. Typically, retail was supposed to leverage passive, but that is not happening.

   

• Let us not turn to the individual allocation basket. As of April 2023, individual investors have 79% of their mutual fund assets in equity funds and 15% in longer period debt funds. Obviously, liquid funds at 4% and ETFs at 2% are fairly insignificant. In contrast, institutional investors and corporates have 32% of their corpus in liquid funds, 28% in ETFs / FOFs, 27% in long period debt funds and just 13% in active equity funds. This ratio has remained the same over the previous month of March 2023.

To sum it up, the overall assets of mutual funds have grown by 6.8%, driven by a mix of flows into debt funds and value accretion in equity funds. While the institutional asset growth was 1.59% yoy, the individual assets actually grew by 10.96% in the year. April 2023 has surely seen the return of debt fund and liquid fund flows.

Key trends in mutual funds – Folios and Ticket sizes

Folios have emerged as the best proxy for retail appetite since they represent accounts unique to an AMC. Despite duplications, this tells you the direction of the wind.

• There were total of 14.64 crore folios as of April 2023 of which retail investors accounted for 92.8% of the total folios. In addition, HNIs accounted for 6.6% of the folios while institutions accounted for 0.6%. However, the retail share of folios comes down drastically when we look at active debt funds. Here, retail investors account for just 66.4% of the folios, while HNI investors account for 31.3% of the folios. HNIs also have a fairly high share of liquid funds and hybrid funds; which are normally customized.

   

• When we look at folios, the big story is the geometric growth in folios since the global financial crisis of 2008-09. Post the financial crisis, there was a 5 year period when the folios actually compressed. Between March 2009 and September 2014, the number of folios actually compressed from 4.76 crore to 3.95 crore. However, between September 2014 and April 2023, the number of mutual fund folios have jumped sharply from 3.95 crore to 14.64 crore. That is a jump of 271% in folios over an 8 year period.

   

• There are two takeaways in terms of folios and retail holding period. Firstly, the average ticket size of retail investors in equity funds has fallen to Rs0.68 lakhs. The folio holding data also contradicts the general apprehension that retail investors are myopic in their equity fund investments. As per the data of April 2023, retail investors hold nearly 56.5% of their equity fund investments for a period of more than 2 years while they hold more than 75% of the retail assets for at least 1 year.

It is not just that the number of folios increased sharply. Retail investors are becoming more patient with equity funds. The onus is on the fund houses now.

Key trends in mutual funds – Geographical mix

One of the interesting trends observed in the last few years has been that investors from smaller towns are increasingly becoming interested in equity and equity funds. It is no longer the old obsession with land and gold and even smaller towns are at the forefront of this shifting trend. This has largely implications for financialization of savings. Here is the data for April 2023.

• Broadly, the mutual fund market is divided into the T30 (top-30) cities and the B30 (cities beyond top-30). On a yoy basis, the AUM of the T30 cities and the B30 cities have increased. In fact, today B30 cities account for 17% of the overall AUM of mutual funds. That may still be small overall, but they have been growing at a rapid pace. Also, on a yoy basis, the AUM of the B30 cities has grown by 7.3%. B30 growth has been driven by greater awareness, higher income levels and also an incentive structure for B-30 cities, which has since been scrapped. 

   

• The B30 cities had a higher preference for equity assets as compared to the T30 cities. However, this data cannot be taken at face value since the T30 cities are where most of the institutional treasuries are located and that would skew the mix away from equity fund AUM. Now for the good news. If you look at the individual asset mix as of April 2023, then 26% of individual assets are located in B30 cities and 74% in T30 cities. Clearly, people in B30 cities are becoming more investment savvy and SIPs are helping out generously.

One final thought. It is probably lack of awareness; but retail investors are not making the best of direct schemes, as less than 15% of retail equity AUM comes through the direct route. That is something, the HNIs and institutions appear to be making the best of.