Key mutual fund trends observed in June 2024

22 Jul 2024 , 11:01 AM

MUTUAL FUND STORY IN JUNE 2024

The month of June 2024 saw the overall mutual fund AUM rise to ₹61.16 Trillion, compared to ₹58.91 Trillion as of the close of May 2024. Like the end of any quarte, debt fund saw net outflows of ₹1.07 Trillion, but the real action was in active equity funds. In fact, active equity funds saw record monthly inflows of ₹40,608 Crore, after setting a record of ₹34,697 Crore in May 2024. As of the close of June 2024, the average assets under management (AAUM) stood at ₹61.33 Trillion. SIP flows in June 2024 touched a record ₹21,262 Crore. This is the third consecutive month that the mutual fund monthly gross SIP flows have been above ₹20,000 Crore. The month of June 2024 also saw 55.13 Lakh fresh SIP accounts, compared to 49.74 Lakh fresh SIP accounts added in May. However, the June figure is still lower than the April figure for SIP gross additions. NFO (new fund offering) flows were relatively strong at ₹15,227 Crore, dominated by Sector / Thematic funds and 50% higher than May 2024.

While these are the actual numbers pertaining to mutual funds in India, there is a much more incisive story in the underlying trends. The numbers are prima facie flattering. Even the SIP stoppage ratio which had spiked to 88.38% in May 2024 has sobered to 58.68% in June 2024. However, the cumulative SIP stoppage ratio for the first quarter of FY24 still remains fairly high at 65.01%. We now gather insights from the AMFI monthly review report, which analyses diverse areas like mix of investors, retail spread, retail intensity, ageing of investors etc. The report for June 2024 throws interesting stories about the growth of mutual funds in India. These stories 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.

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

Mutual fund segment level trends for June 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 ₹61.33 Trillion in June 2024; compared to ₹58.60 Trillion in May 2024, ₹ 57.01 Crore in April 2024, ₹55.01 Trillion in March 2024, and ₹54.52 Trillion in February 2024. That translates into dollar AUM of $735 Billion. In June 2024, the average AUM and the closing AUM were both sharply higher compared to May 2024. In June 2024, the accretion in equity AUM was triggered partially by index accretion and largely by flows across equity funds, hybrid funds and passive funds. In the case of debt funds, the AUM depletion was largely an outcome of the heavy redemptions in short term liquid funds to meet the quarterly treasury outflows. In the case of equity funds, hybrid funds, and passive funds; the growth in AAUM was a mix of flows and index accretion. On a yoy basis, the mutual fund AAUM as of June 2024 has grown by a healthy 36.84% compared to June 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 June 2024, active equity funds and passive funds gained AUM share while the share of active debt funds and liquid funds was lower. This can be attributed to the sharp outflows from debt in June, but also because equity oriented active and passive funds got a huge booster from the index rally. The net results was that, active equity fund share in June 2024 surged by 100 bps from 58.6% to 59.6% over May 2024 while the share of active equity funds in overall AUM is 830 bps higher on yoy basis.
• Passive fund share was up 10 bps from 12.7% to 12.8% in June 2024 while it is flat on yoy basis. Here, one must remember that passive funds include index-based equity products and also index-based debt products. Active debt funds share was down by 60 bps from 15.7% to 15.1% in June 2024 over May 2024 while it is down 470 bps on yoy basis. Finally, let us turn to liquid / money market funds. The share was down 40 bps at 12.5% in June 2024 compared to May 2024, while it is down 360 bps on yoy basis.
• The share of debt fund AUM was not only hit by higher returns on equity funds in last couple of years, but also the redemption of debt funds at least once every quarter. There is a reason for this trend. Debt funds in India are predominantly treasury funds where corporates and institutions park cash surpluses to meet future commitments like salaries, advance tax payment, GST etc. Hence, you normally find a rush to redeem these liquid and money market funds each quarter when the advance tax liability for companies come up. However, much of these outflows also come back in the next few months as we saw in the last quarter. However, the interest rate uncertainty of the RBI and the lack of innovative debt products in India have restrained growth of debt funds.
• Are individual investors playing a bigger role in mutual fund AUM compared to institutions? Your intuitive answer would, probably, an emphatic YES. However, it is not just about intuition but this trend is also borne out by the data. One reason could be that the SIP flows at ₹21,262 Crore and the NFO flows of ₹15,227 Crore, come largely from the Gen-Z and millennial investors. This is a market that is growing at a rapid pace, especially considering India’s demographic dividends. Another factor could be that the reduced interest in debt funds is making investors to naturally gravitate towards equities in search of higher returns. It is more like the TINA factor at play in this case.
• In June 2024, gross SIP flows were at a record high of ₹21,262 Crore; a credible barometer of retail intensity of equity fund flows. Between June 2023 and June 2024, the share of individual investors in the overall AUM composition has gone up by 380 basis points from 57.3% to 61.1%. Even, on MOM basis, the share of individuals in mutual fund AUM is up 50 bps from 60.6% to 61.1%; which is despite strong institutional debt flows in June 2024. On the other hand, the share of institutions and corporates in the overall mutual fund AUM has fallen over the last one year from 42.7% to 38.9%. In December 2023, the share of retail crossed 60%; and has sustained since then.
• How much have individual investors allocated to each of the various categories of mutual funds like debt, equity, liquids, and ETFs? As of June 2024, individual investors have a share of a mere 38% in debt oriented schemes and 12% in short term money market schemes. These shares have remained steady. Now, these are treasury products with institutional appetite, so it is understandable that retail share is quite low. But, individual investors have an imposing 88% share of equity fund assets. Surprisingly, individuals have just about 11% of passive fund AUM (index funds and ETFs). This could also be attributed to the large share of debt index ETFs. The other reason is that the ETF has taken off more with corporates and institutions and now HNIs are getting in. Retail may still take some more time to get comfortable with these passive forms.
• Let us turn to the individual investor allocation basket. We are just looking at the asset mix the other way; that is how much of their corpus they have allocated to various asset classes. As of June 2024, individual investors have 86% of their mutual fund asset portfolio in active equity schemes and 10% in active debt funds. Liquid funds at 2% and ETFs at 2% are fairly small. Institutional investors and corporates have 28% of their corpus in liquid funds, 29% in ETFs / FOFs, 25% in longer active debt funds and 18% in active equity funds. This trend is the same as April 2024. These shifts in the lates month are more a function of value tweaks, which has caused equity share to go up.

As of the close of June 2024, overall assets of mutual funds in India have grown by 36.83% yoy. Assets of individual investors in this period grew by 45.94% while the growth in assets of institutional investors was at a subdued 24.62%.

KEY TRENDS IN MUTUAL FUNDS – FOLIOS AND TICKET SIZES (JUNE 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 19.11 Crore folios as of the close of June 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. However, retail share of folios comes down sharply 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%). However, these shares have been static in the recent past.
• 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 due to persistent outflows from equity funds. However, between September 2014 and June 2024, the number of mutual fund folios have jumped sharply from 3.95 Crore to 19.11 Crore. That is a jump of 383.8% 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 17.54% since Sep-2014.
• There are two takeaways on folios and retail holding period. Firstly, average ticket size is sharply up at ₹3.00 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. The average account size of the retail investors has also gone up from ₹0.72 Lakhs last year to ₹0.84 Lakhs this year, which is due to index accretion.
• The general presumption is that retail investors tend to be less patient about investments. However, the average folio holding tenure busts this myth. Retail investors do not adopt a myopic approach to equity funds, as is popularly believed. As per data for June 2024, retail investors hold 53.3% of equity fund assets for more than 2 years (up 25 bps from last year). This is sharply up from 43.7% in 2022. Interestingly, while 53.3% of the equity assets have been held for more than 24 months, the share of patient investing is much higher at 58.9% in the case of retail investors.

The surge in the individual investor share is linked to SIP flows and NFO flows, while the stickiness is on account of the lessons learnt post the pandemic; that time matters more than timing in the market!

KEY TRENDS IN MUTUAL FUNDS – GEOGRAPHICAL MIX (JUNE 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 June 2024 with May 2024, total T30 assets are higher by 4.36% at ₹50.20 Trillion. Total assets of B30 centres increased by 6.06% to ₹11.13 Trillion in June 2024. Despite the index accretion positively impact all players, B-30 cities are driving a lot of flow alpha.
• SEBI banned entry loads in 2009 and introduced Direct schemes in 2013. However, while 45% of the overall assets came through the Direct route, only 24% of the retail investors money came through the Direct route. HNIs are slightly better at 27%. Clearly, retail investors are not making the best of the facility of direct investing available to them.

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. Above all, it looks like the intense retail participation in equities is here to stay!