Key mutual fund trends observed in June 2023

18 Jul 2023 , 09:38 AM

The Association of Mutual Funds of India (AMFI), releases key trends in mutual funds based on industry level data. These trends could either pertain to the overall AUM of mutual funds, the mix and colour of the AUM or even the mix of the nature of investors. Apart from a geographical analysis of fund holdings, the monthly analysis of AMFI also provides additional analytics like ageing of equity fund investments and average holding period. Here are some key trends observed in mutual fund data for the month of June 2023.

Key Trends in Mutual Funds – Industry level (June 2023)

The industry level mutual fund trends as of June 2023 are confined to a macro level and have more to do with the colour and direction of the flows into different fund classes.

• Average assets under management (AAUM) of all mutual fund schemes touched a life-time high of Rs44.82 trillion as of the close of June 2023. That translates into dollar AUM of $545 billion. On a yoy basis, the mutual fund AUM has grown by 21.2% compared to June 2022. That was partially due to the base effect and largely due to Nifty rally.

   

• In the last couple of years, we have seen a gradual shift in the AUM from active debt to active equity, although it had stabilized in favour of debt funds in the previous two months of April and May. Due to the debt fund sell-off in June 2023, the share of active debt funds fell slightly from 20.3% to 19.8% MOM. Between June 2022 and June 2023, the market share of equity oriented funds (including aggressive equity balanced) has gone up from 49.1% to 51.3% of the overall AUM mix. 

   

• During one-year period, the share of active longer period debt funds fell from 21.3% to just 19.8% while liquid funds fell from 17.7% to 16.1%. The inflow of Rs1.70 trillion into debt funds in April and May 2023 combined has helped the share of debt funds stabilize a bit, but the selling in June 2023 in debt funds again put pressure. Equity funds are gaining marginally from flows, but substantially from market accretion. Interestingly, this period saw passive ETFs and FOFs spruce up their share of AUM further from 11.9% to 12.8% between June 2022 and June 2023.

   

• Are we seeing more individuals playing a bigger role in mutual fund investments? The answer would certainly be an emphatic “Yes.” The surge in millennial investors in mutual funds has led to a surge in the number of SIPs, which has substantially boosted individual participation in mutual funds. Between June 2022 and June 2023, the share of individuals in the overall AUM composition has gone up from 55.1% to 57.3%. Correspondingly, the share of institutions and corporates in the overall mutual fund AUM has fallen from 44.9% to 42.7%.

   

• How much have individual investors allocated to each of the categories of mutual funds. For instance, individual investors have a share of just 41% in debt oriented schemes and 12% in short term money market schemes. These are largely treasury products, so that is understandable. However, individual investors have an imposing 89% share of equity fund AUM. What leaves to be desired, is that individual share of ETFs and FOFs is just 11% of AUM. Retail investors are not leveraging passive products to the hilt.

   

• Let us turn to the individual mutual fund allocation basket. As of June 2023, individual investors have 80% of their mutual fund assets in equity related schemes and 14% in longer period debt funds. This has only changed marginally over May 2023. Obviously, liquid funds at 4% and ETFs at 2% are fairly insignificant. In contrast, institutional investors and corporates have 33% of their corpus in liquid funds, 27% in ETFs / FOFs, 27% in long period debt funds and just 13% in active equity funds. This has been static over the last 4 months.

To sum up the industry level story of mutual funds, overall assets of mutual funds have grown by 21.2% yoy, driven by a mix of flows into debt funds and value accretion in equity funds. While the institutional asset growth was 15.33% yoy, the individual assets actually grew by an impressive 25.98%. It looks like individuals are slicing a chunk of the growth.

Key trends in mutual funds – Folios and Ticket sizes (June 2023)

Folios are investor accounts unique to an AMC. They are the best proxy for retail appetite despite the fact that they are not unique accounts. Notwithstanding duplications, folios tell you which way the wind is blowing.

• There were total of 14.91 crore folios as of the close of June 2023 of which retail investors accounted for 91.1% of the total folios; slightly lower than in April. In addition, HNIs accounted for 8.2% of the folios (spike over April) while institutions accounted for 0.7%. 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 folios of liquid funds (20.3%) and hybrid funds (22.6%); which are incidentally targeted at the HNI investors.

   

• 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 phase 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 June 2023, the number of mutual fund folios have jumped sharply from 3.95 crore to 14.91 crore. That is a jump of 278% in folios since the current government assumed power at the centre. That is a lot of financialization of savings and also the democratization of equity markets at large.

   

• There are two takeaways on folios and retail holding period. Firstly, average ticket size of retail investors in equity funds stands almost static at Rs0.68 lakhs. But there is a more interesting takeaway. The folio holding data also contradicts the general belief that retail investors tend to take a myopic approach to equity funds. As per the data of June 2023, retail investors hold nearly 56.5% (up from 55.3% in 2021) of their equity fund investments for a period of more than 2 years against the general equity average of 44.9%. Individual investors are also more long term than other classes of investors. They hold 75-80% of the retail assets for a minimum period of 1 year.

It is not just that the number of folios increased sharply. Retail investors are becoming more patient with equity funds and taking wealth creation seriously. This is largely happening through the systematic investment plan (SIP) route.

Key trends in mutual funds – Geographical mix

Mutual fund marketers would tell you that much of incremental sales of mutual funds come from tier-2 and tier-3 cities. For the non-urban investors, it is no longer the old obsession with land and gold. With greater digital connectivity, smaller towns are at the forefront of this shifting trend. 

• The mutual fund market is divided into the T30 (top-30) cities and the B30 (cities beyond top-30). If you compare June 2023 over May 2023, total assets of T30 centres increased by 4.49% to Rs37.24 trillion while the total assets of B30 centres increased by 3.77% to Rs7.58 trillion. Of course, total assets are also a function of market value accretion.

   

• How do the T30 and the B30 cities look in terms of composition of their assets in the overall picture? 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 look small, but surely the folio accretion is coming from these smaller cities.

   

• The B30 cities had a higher preference for equity assets as compared to the T30 cities in June 2023 at 79% compared to just 46%. However, this data cannot be taken at face value since the T30 cities are where most institutional treasuries are located and that would skew the mix away from equity fund AUM. 

   

• To get a more granular picture of the T30 / B30 story, let us look at just individual assets rather than total assets. Nearly 26% of Individual assets as of June 2023 are located in B30 cities and 74% in T30 cities. Clearly, people in B30 cities are becoming more investment savvy and SIPs are helping.

   

• The SEBI had banned entry loads in 2009 and introduced Direct schemes in 2013. However, 46% of the overall assets have come through the Direct route, only 21% of the retail investors money has come through the Direct route. Either it has not caught on or retail investors still see value in getting value addition from the broker.

   

• There are interesting insights from the state rankings in mutual fund intensity. Maharashtra, Delhi, and Gujarat lead in state-wise AUM, which is hardly surprising. If you look at MF AUM as share of state GDP, then Goa, Chandigarh, and Haryana figure in the top-6; apart from Mumbai, Delhi, and Gujarat. These states also feature in the top-6 in terms of per capita AUM. 

Clearly, mutual funds are becoming the first port of call for serious investors and the cult is spreading to smaller towns at a rapid pace. That is playing a big role in financialization of household savings.