Key mutual fund trends observed in April 2024

23 May 2024 , 09:54 PM

MUTUAL FUND STORY IN APRIL 2024

The month of April 2024 saw the overall mutual fund AUM rise to ₹57.26 Trillion, compared to ₹53.40 Trillion as of the close of March 2024. That was led by the sharp inflows into debt funds after the massive sell-off in the previous month. Liquid fund inflows was the major trigger for flows into debt funds in April 2023. As of the close of April 2024, the average assets under management (AAUM) stood at ₹57.01 Trillion. SIP flows in April 2024 touched a record ₹20,371 Crore. This is the first time in the history of mutual funds that the monthly gross SIP flows had crossed ₹20,000 crore. The month of April 2024 also saw about 63 lakh fresh SIP accounts being added, another record of sorts. NFO (new fund offering) flows were relatively tepid at ₹1,532 Crore, dominated by sectoral and flexi-cap equity funds.

While these are the actual numbers pertaining to mutual funds in India, there is a much more incisive story that is evident if you look at the underlying trends. The AMFI releases the trends report each month, covering such diverse areas like mix of investors, retail spread, retail intensity, ageing of investors etc. The report for April 2024 has been released and it again throws up some interesting stories about the growth of mutual funds in India. These trends pertain to overall AUM of mutual funds, the mix and colour of AUM accretion and the nature of investors. AMFI also provides value-added analytics like ageing of equity fund investments and average holding period. Here is a quick summary of the key trends.

KEY TRENDS IN MUTUAL FUNDS – SEGMENT LEVEL (APRIL 2024)

Mutual fund segment level trends for April 2024 are confined to a macro level and have more to do with the colour and direction of the flows into specific fund classes.

• Average assets under management (AAUM) of all mutual fund schemes combined, touched a life-time high of ₹57.01 Trillion as of the close of April 2024, higher than the AAUM of ₹55.01 Trillion as of the close of March 2024, ₹54.52 Trillion as of the close of February 2024, and ₹52.89 Trillion as of the close of January 2024. That translates into dollar AUM of $680 Billion. The AAUM in March 2024 had been higher, despite the closing AUM in March being lower than in February 2024. However, in April 2024, the average AUM and the closing AUM were both sharply higher over March 2024. In April 2024, the accretion in equity AUM was triggered partially by flows and largely by the index accretion. In the case of debt funds, the AUM accretion can be largely attributed to the surge of flows into funds at the short end of the yield curve like liquid funds and money market funds. On a yoy basis, the mutual fund AAUM as of April 2024 has grown by a healthy 37.27% compared to April 2023. The bull rally of last one year also contributed to this accretion in AAUM, despite debt fund flows being volatile.
• In the last couple of years, we have seen a gradual shift in the overall AUM mix from active debt to active equity. In April 2024, active equity funds gained AUM share while the share of passive funds was flat MOM. However, while active debt funds saw fall in share, the liquid funds saw small rise in AUM share MOM. This can be attributed to the sharp inflows into liquid and money market funds in April. The equity share accretion was partly due to the fall in the AUM of debt funds in April 2024, and partly due to the value accretion of equity funds. As a result, active equity fund share surged by 30 bps from 57.8% to 58.1% over March 2024 while it is up 720 bps on yoy basis. Passive fund share was down 10 bps from 12.9% to 12.8% in April 2024 while it is down 20 bps on yoy basis. Active debt funds share was down by 40 bps from 16.3% to 15.9% over March 2024 while it is down 460 bps on yoy basis. Finally, let us turn to liquid / money market funds. The share was up 20 bps at 13.2% in April compared to March 2024, while it is down 240 bps on yoy basis compared to April 2023.
• The share of debt fund AUM was not only hit by higher returns on equity funds in last couple of years, but also the massive redemption of debt funds at least once every quarter. Debt funds in India are still predominantly seen as treasury funds where corporates and institutions park their cash surpluses till the liabilities like salaries, advance tax payment or GST becomes due. That is why you normally find a rush to redeem these liquid and money market funds each quarter when the advance tax liability for companies comes up. Around such dates, the corporates rush to redeem their liquid fund holdings around each quarter to pay their advance tax payouts and that results in massive outflows. In fact, if you look back at the debt fund flows, you will find a surge of redemptions at the end of each quarter, and this becomes a lot more acute during the end of the fiscal year. There is one more factor that has dampened the enthusiasm in these debt funds. Now pure debt funds with less than 35% in equity will not have the benefit of indexation benefits on long term capital gains tax, which takes away the sheen from most of the short term funds and fixed term plans.
• Are individual investors playing a bigger role in mutual fund AUM as compared to institutional investors. One would be able to agree with that statement even intuitively. However, even the data is supportive of this viewpoint. If you look at the AUM share, the answer is fairly unequivocal and this can be largely attributed to the surge in SIP flows, coming largely from the Gen-Z and millennial investors into mutual funds. The reduced interest in debt funds can also be cited as a factor, but it is more about young investors being naturally inclined towards equities and the power of risk in wealth. In April 2024, gross SIP flows were at a record high of ₹20,371 Crore; a fine barometer of retail appetite for equity funds. Between April 2023 and April 2024, the share of individual investors in the overall AUM composition has gone up by 290 basis points from 57.6% to 60.5%. Even, on MOM basis, the share of individuals in mutual fund AUM is flat at 60.5%; which is despite the surge in institutional debt flows in April 2024. At the same time, the share of institutions and corporates in the overall mutual fund AUM has fallen over the last one year from 42.4% to 39.5%. It was only in December 2023, that the share of retail crossed 60%; and that has sustained since.
• How much have individual investors allocated to each of the various categories of mutual funds like debt, equity, liquids, and ETFs? As of April 2024, individual investors have a share of a mere 39% in debt oriented schemes and 12% in short term money market schemes. These are treasury products where demand largely comes from corporates and financial institutions. Individual investors have an imposing 88% share of equity fund assets. Surprisingly, individuals have just 10% of passive fund AUM (index funds and ETFs). Apparently, retail investors are not leveraging passive products.
• Let us turn to the individual investor allocation basket; meaning how much of their corpus they have allocated to various asset classes. As of April 2024, individual investors have 85% of their mutual fund assets in equity schemes and 10% in active debt funds. Liquid funds at 3% and ETFs at 2% are fairly small in comparison. Institutional investors and corporates have 29% of their corpus in liquid funds, 29% in ETFs / FOFs, 25% in longer active debt funds and 17% in active equity funds; broadly same as last month.

As of the close of April 2024, overall assets of mutual funds in India have grown by 37.29% yoy. Assets of individual investors in this period grew by 44.27% while the growth in assets of institutional investors stood at a subdued 27.81%.

KEY TRENDS IN MUTUAL FUNDS – FOLIOS AND TICKET SIZES (APRIL 2024)

Folios are investor accounts unique to an AMC. Folios do not represent unique investors, but are a good barometer of retail intensity.

• There were total of 18.15 Crore folios as of the close of April 2024 of which retail investors accounted for nearly 91.4% of the total folios. In addition, HNIs accounted for 8.0% of the folios while institutions accounted for the balance 0.6% of the total folios. These ratios have also been static over last few months, although the retail share marginally increased in the latest month. However, the retail share of folios comes down drastically when we look at active debt funds. Here, retail investors account for just 68.7% of the folios, while HNI investors account for 29.0% of the folios. HNIs also have a high share of folios of liquid funds (19.6%) and hybrid funds (23.8%). The latter category is targeted at the savvy HNI investors. HNIs have 4.8% of folios in index funds, but just 2.3% in ETFs.
• Here is a longer term perspective. Between March 2009 and September 2014, the number of mutual fund folios contracted from 4.76 Crore to 3.95 Crore. However, between September 2014 and April 2024, the number of mutual fund folios have jumped sharply from 3.95 Crore to 18.16 Crore. That is a jump of 359.75% in folios since the year 2014. The financialization of savings becomes apparent when you consider that folios grew at a CAGR (compounded annual growth rate) of 17.26% since Sep-2014.
• There are two takeaways on folios and retail holding period. Firstly, average ticket size is sharply up at ₹3.08 Lakhs from ₹2.76 Lakhs last year. The average ticket size for equity oriented funds at ₹1.91 Lakhs is up 24% yoy, while for debt oriented funds it is ₹16.02 Lakhs, up 10% yoy. One interesting trend is that the average account size of the retail investors has also gone up from ₹0.72 Lakhs last year to ₹0.84 Lakhs this year.
• The general presumption is that retail investors tend to be less patient about investments. However, the average folio holding tenure contradicts this theory. Retail investors do not adopt a myopic approach to equity funds. As per data of April 2024, retail investors hold 53.3% of equity fund assets for more than 2 years (up 20 bps from last year). This is sharply up from 43.7% in 2022. Nearly 72.5% of the equity AUM of individuals is held for at least 1 year.

In a sense, the surge in the individual investor share is linked to SIP flows, while the stickiness has to do with the tough lessons learnt post the pandemic. During the pandemic, the ones who stayed with their SIPs, laughed all the way to the bank.

KEY TRENDS IN MUTUAL FUNDS – GEOGRAPHICAL MIX (APRIL 2024)

How are cities and towns contributing to the mutual fund growth story?

• The mutual fund market is divided into T30 (top-30) cities and B30 (cities beyond top-30). If you compare April 2024 with March 2024, total T30 assets are higher by 3.69% at ₹46.85 Trillion. Total assets of B30 centres increased by 3.43% to ₹10.16 Trillion in April 2024. The trend is ambiguous since most of the AUM accretion for both categories came from index appreciation, but folios are growing faster in B-30 cities. However, the month did see the B-30 AUM cross ₹10 trillion for the first time.
• SEBI banned entry loads in 2009 and introduced Direct schemes in 2013. However, while 43% of the overall assets came through the Direct route, only 23% of the retail investors money came through the Direct route. HNIs are slightly better at 27%.

In the last few months, the AMFI monthly trend report has shown a shift of retail assets from beta assets to alpha assets as markets scaled new highs. In April 2024, the trend was again visible, but it was debt funds that stole the show.