Key mutual fund trends observed in October 2024

25 Nov 2024 , 11:17 AM

MUTUAL FUND BRIEFING FOR OCTOBER 2024

The month of October 2024 saw the overall mutual fund AUM rise to ₹67.26 Trillion despite fund inflows of ₹2.40 Trillion. Most of these flows were neutralized by value depletion in tandem with falling Nifty and Sensex. October 2024 saw heavy inflows into all categories of fund including active equity, active debt, hybrids, and passive funds. Active equity funds saw record monthly inflows of ₹41,887 Crore; compared to ₹34,419 Crore in September, ₹38,239 Crore in August, ₹37,113 Crore in July, ₹40,608 Crore in June, and ₹34,697 Crore in May 2024. Average equity fund flows of the last 6 months stood at ₹37,827 Crore.

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

Mutual fund segment level trends for October 2024 are confined to a macro level with focus on colour and direction of the flows into specific fund classes.

• Average assets under management (AAUM) of all mutual fund schemes, stood at an elevated level of ₹68.50 Trillion as of end October 2024; compared to ₹68.00 Trillion in September, ₹66.04 Trillion in August, ₹64.71 Trillion in July, ₹61.33 Trillion in June, and ₹58.60 Trillion in May 2024. That translates into dollar AUM of nearly $811 Billion. The accretion in equity AUM in October was triggered entirely by heavy mutual fund inflows; but these inflows were largely neutralized by the sharp correction in the Nifty and the Sensex amidst heavy FPI selling. On yoy basis, mutual fund AAUM as of October 2024 grew 43.3% compared to October 2023.
• In the last couple of years, we have seen a steady but sure shift in the overall AUM mix from active debt to active equity. If you compare October 2024 with September 2024, active equity funds saw lower AUM share while active debt funds and treasury funds saw higher AUM share. However, the market share of passive funds was stable. Active equity fund share in AUM for October 2024 was down 70 bps from 61.0% to 60.3% MOM due to the sell-off; but AUM share was up 600 bps yoy.
• Passive fund share was 10 bps lower at 12.6% in October 2024 on MOM and on yoy basis. The share of active debt funds was up 20 bps from 14.2% to 14.4% in October 2024 while the share is down 440 bps yoy. What about liquid / money market funds? Their share rose 60 bps from 12.1% to 12.7% MOM in October 2024 but was down 140 bps yoy.
• Are individual investors playing a bigger role in mutual fund AUM accretion? There is a distinct shift visible in favour of individual investors. One reason could be the surge in SIP flows. The young market segment for mutual fund SIPs reflects India’s demographic dividends. Also, falling yields on debt funds is pushing investors towards equity funds. In October 2024, gross SIP flows were at a record high of ₹25,323 Crore. Between October 2023 and October 2024, the share of individual investors in the overall MF AUM composition has gone up by 240 basis points from 58.9% to 61.3%. The gains for individual investors has been the loss for institutional investors.
• How much have individual investors allocated across various categories of mutual funds? These ratios have been fairly stable over time. As of October 2024, individual investors have a share of a mere 36% in active debt funds and just 11% in short term money market schemes. These are treasury products with institutional appetite. However, individual investors have 88% market share of equity fund assets, although just 12% of passive fund AUM (index funds and ETFs). That is rather disappointing.
• What about the individual investor’s allocation basket. How much of their corpus has been spread across various asset classes? As of October 2024, individual investors have 87% of their mutual fund asset portfolio in active equity schemes and 9% in active debt funds. Liquid funds at 2% and ETFs at 2% are fairly small. What about non-individual investors? Institutions and corporates have 29% of their corpus in liquid funds, 29% in ETFs / FOFs, 24% in longer active debt funds and just 18% in active equity funds.

As of the close of October 2024, overall assets of mutual funds in India (AAUM) has grown by 43.30% yoy. Assets of individual investors in this period grew by 49.05% while the growth in assets of institutional investors was a relatively modest 35.05%.

KEY TRENDS IN MUTUAL FUNDS – FOLIOS AND TICKET SIZES (OCTOBER 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 21.65 Crore folios as of the close of October 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 stable over last few quarters. However, the 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%. HNIs also have a high share of folios of liquid funds (20.1%) and hybrid funds (24.0%). Hybrid funds are a natural fit for HNIs.
• Between March 2009 and September 2014, mutual fund folios contracted from 4.76 Crore to 3.95 Crore due to persistent outflows from equity funds. However, between September 2014 and September 2024, the number of mutual fund folios have jumped from 3.95 Crore to 21.65 Crore. That is a jump of 448% in folios since the year 2014. folios have grown at CAGR (compounded annual growth rate) of 18.37% since Sep-2014.
• There are two takeaways on folios and retail holding period. Let us look at average ticket size for equity and debt products. For equity funds (predominantly a retail product), the average ticket size stands at ₹2.08 Lakhs, which is nearly 20% higher yoy. In the case of debt funds, the average ticket size is at ₹17.28 Lakhs, which is about 10% higher yoy. The net AUM of Indian mutual funds at ₹67.26 Trillion is spread across 21.65 Crore folios, giving a per folio ticket size of ₹3.11 Lakhs.
• There is a general presumption that retail investors are less patient about investments. However, the data paints a different picture of retail stickiness. Unlike the popular perception, retail investors are anything but myopic in their approach to equity funds. As per data for October 2024, retail investors hold 54.7% of equity fund assets for more than 2 years (sharply higher over last year). This ratio was just 43.7% in 2022.

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-COVID. One of the narratives that became evident during the pandemic is that there is a lot of wisdom in just persisting with your SIPs. Over time, the rupee cost averaging feature of SIPs would ensure that you get more value when markets rise and more units when the markets fall.

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

How are cities and towns contributing to the mutual fund growth story? We specifically look at the story of big cities versus small towns and emerging cities.

• The mutual fund market is divided into T30 (top-30) cities and B30 (cities beyond top-30). If you compare October 2024 with September 2024, total T30 assets are higher by 0.90% at ₹55.91 Trillion. Total assets of B30 centres increased by 0.01% from at ₹12.59 Trillion. To remove the overall institutional impact, we only look at the share of individuals. In October 2024, the B30 cities accounted for 27.01% of individual assets an increase of 7 bps over September 2024. This also meant that the share of individuals in the top-tier T-30 cities fell from 73.06% to 72.99%.
• 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 25% of the retail investors money came through the Direct route. HNIs are slightly better at 27%. Clearly, retail investors are not making the most 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; and that trend has only got magnified. For now, the interest in beta assets is still cyclical. October may be an exception in that the sell-off neutralized the solid inflows. November may give a clearer picture!