MF AUM crosses Rs. 50 trillion for the first time in December 2023

9 Jan 2024 , 10:16 AM

Mutual fund flow and AUM story of December 2023

The month of December is normally a tepid month for mutual fund flows. That is because there is pressure on companies to pay their quarterly advance tax and most of the companies tend to rely on their treasury holdings of liquid funds. Hence a sell-off in debt funds at the end of each quarter is almost inevitable. That was the case in December 2023 also. While the equity funds and hybrid funds continued to see robust inflows, it was the debt funds that saw heavy outflows with most of the outflows concentrated at the short end of the yield curve. However, 2 factors were very supportive of mutual fund flows in December. Gross SIP (systematic investment plan) flows in December 2023 touched a new record level of 17,600 crore while the NFO (new fund offering) flows in the month were also strong at Rs9,872 crore; largely dominated by equity fund NFOs. 

But the big story of the month was that the AUM of mutual funds in India crossed Rs50 trillion for the first time ever; led by positive flows and robust equity markets. The net AUM stood at Rs50.748 trillion at the close of December 2023, closing the year on a high. What is really gratifying is that the SIP flows have sustained despite the markets trading at all-time highs. Some attributing this to a phenomenon called “Chasing the Leaders.” That may be partially true, but there is one positive takeaway from the whole story. Mutual funds investors are not shying away at the first signs of a market correction. Most of them have learnt the hard way during the COVID crisis that it is not timing the market, but time in the market that really counts for wealth creation. That appears to have been rubbed into them and that is a very good trend. Let us start off with our traditional Trillion dollar club

Who dominates the Trillion Rupee club

The trillion rupee club is an exclusive club of fund categories with over Rs100,000 crore in AUM. Out of the 16 active debt schemes, only 4 categories are in the trillion rupee club. This includes liquid funds, money market funds, short duration funds and corporate bond funds. In fact, Low Duration Funds, which featured in this list last month, has fallen out of the category this month. Ironically, the only debt fund category that would classify as a long maturity fund in this list is the corporate bond fund category; rest are short end funds. 

What about the active equity funds? Here is where there is the biggest concentration in the trillion rupee club. A total of 10 out of the 11 equity funds had AUMs in excess of Rs1 trillion with only dividend yield funds having an AUM of under Rs1 trillion. In fact, 6 out of 10 of the equity fund categories viz., large cap funds, mid cap funds, small cap funds, sectoral/thematic fund, ELSS Funds, and flexi-cap funds are already in the Rs2 trillion club. ELSS Funds are the latest entrant into that list in this month. Most of the value accretion in AUM is clearly coming from the active equity funds.

What about the hybrid and solution funds. Out of the 8 funds in this category, there are 3 funds in the Rs1 trillion club with Dynamic Asset Allocation Funds (BAFs) already in the Rs2 trillion club. In the passive funds category, 2 out of the 4 fund categories viz., index funds and index ETFs are already in that category. Incidentally if you take all the funds across the board, then index ETFs lead the way with AUM of Rs6.23 trillion, followed by liquid funds at Rs3.79 trillion and flexi cap funds at Rs3.28 trillion.

Debt Funds face quarterly sell-off; Equity and Hybrid fund hold up

Here is a quick look at how the monthly flows across fund categories panned out for the last 13 months. Solutions funds are merged into hybrid funds.

Month	Debt Fund  Flows (Rs crore)	Equity Fund  Flows (Rs crore)	Hybrid Fund  Flows (Rs crore)	Passive Fund  Flows (Rs crore)	Total MF Flows (Rs crore)
Dec-22	(21,947)	7,303	2,418	15,398	4,491
Jan-23	(10,316)	12,547	4,681	3,955	11,373
Feb-23	(13,815)	15,686	630	6,488	9,575
Mar-23	(56,884)	20,534	(12,148)	26,804	(19,264)
Apr-23	106,677	6,480	3,511	6,945	121,435
May-23	45,959	3,240	6,193	4,487	57,420
Jun-23	(14,136)	8,638	4,611	2,057	(2,022)
Jul-23	61,440	7,626	12,541	860	82,046
Aug-23	(25,873)	20,245	17,273	4,535	16,181
Sep-23	(101,512)	14,091	18,650	4,720	(66,192)
Oct-23	42,634	19,957	10,250	7,746	80,529
Nov-23	(4,707)	15,536	13,723	2,234	25,616
Dec-23	(75,560)	16,997	15,229	573	(40,685)

Data Source: AMFI

Here are some quick takeaways. Debt funds flows were negative in 4 out of the last 5 months and in 9 out of the last 13 months. Quarter-end outflows have been specifically acute for debt funds. The fiscal year started positively for debt funds with strong inflows in April and May, but after that the sentiments have been generally negative, except for the brief respite in October 2023. 

Hybrid fund flows are robust, but that is more due to the predominance of arbitrage fund inflows and the growing interest in multi-asset funds as a naturally diversified asset class. These are evidently short term funds shifting from liquid funds to arbitrage funds in search of higher returns and lower tax incidence. That is evident from the sustained flows into arbitrage funds. The rising demand for stocks from FPIs and the volatility is only making arbitrage returns more attractive for parking short term funds.

How overall AUM mix evolved in December 2023?

The month of December 2023 saw a very sharp uptick in the overall AUM, which surged from Rs49.05 trillion to Rs50.78 trillion over the previous month. This also marks the highest ever closing AUM for mutual funds in India. In fact, since the start of fiscal year FY24, the AUM of mutual funds is up 28.82%, largely explained by the frenetic rally in equities, but supported by positive equity fund inflows and hybrid fund inflows too. The AUM surge of 3.53% in December over November, is a smart single-month accretion. Please note that Rs1 trillion is equal to Rs1,00,000 crore.

Month	Debt AUM  (Rs trillion)	Equity AUM   (Rs trillion)	Alternate AUM  (Rs trillion)	Total AUM  (Rs trillion)
Dec-22	12.42	15.25	11.92	39.89
Jan-23	12.38	15.06	11.87	39.62
Feb-23	12.30	15.02	11.83	39.46
Mar-23	11.82	15.17	12.09	39.42
Apr-23	12.99	15.85	12.47	41.62
May-23	13.49	16.57	12.85	43.20
Jun-23	13.48	17.43	13.22	44.39
Jul-23	14.17	18.25	13.69	46.38
Aug-23	14.00	18.60	13.74	46.64
Sep-23	13.05	19.08	14.17	46.58
Oct-23	13.54	18.79	14.10	46.72
Nov-23	13.58	20.33	14.87	49.05
Dec-23	12.91	21.79	15.78	50.78

Data Source AMFI

For December 2023, the debt fund AUM fell sharply to Rs12.91 trillion compared to Rs13.58 trillion at the close of last month. On a yoy basis, the AUM of debt funds is up 3.95%. However, the equity fund AUM surged to Rs21.79 trillion compared to Rs20.33 trillion at the close of last month. On a yoy basis, the AUM of active equity funds is up a whopping 42.89%. The equity fund AUM has been the clear beneficiary of the frenetic growth in the indices over the last one year; apart from positive flows. Alternate assets saw AUM grow by 32.38% yoy, but this story was largely driven by hybrid funds in the current year. Here is the AUM share of different categories of funds changed in last 4 months

Month	Active Debt Funds	Active Equity Funds	Hybrid  Funds	Passive Funds	Solution Funds	Close-ended Funds
Sep-23	28.02%	40.97%	12.62%	16.97%	0.82%	0.60%
Oct-23	28.99%	40.23%	12.58%	16.80%	0.81%	0.59%
Nov-23	27.68%	41.46%	12.72%	16.78%	0.82%	0.55%
Dec-23	25.42%	42.92%	13.03%	17.21%	0.84%	0.58%

If you take a 4 months perspective, share of active equity fund AUM and the share of hybrid fund AUM has gained smartly at the cost of active debt fund AUM share. However, the share of AUM of passive funds edged up and solution funds remained almost static over the period. It indicates that what the passive equity index funds gained as market appreciation in this period has been offset by tepid flows. 

Active Debt funds: Most debt funds witness net selling

Debt funds saw net outflows of Rs75,560 crore in December 2023 This is the ninth time in the last 13 months that debt funds have seen negative flows. The inflows were very selective and even these were quite small. The bulk of the debt fund action was in outflows during the month of December 2023. Small inflows were seen in short duration funds Rs595 crore, long duration funds Rs272 crore and corporate bond funds Rs188 crore.

Among the debt fund categories that saw net outflows in December 2023 liquid funds saw outflows of Rs39,675 crore, low duration funds Rs9,432 crore, money market funds Rs8,384  crore, floater funds Rs6,171 crore, and ultra short duration funds Rs6,030 crore. Most of the other debt fund categories also witnessed net selling in December 2023, but there relatively much smaller in size.

Active Equity Funds: net inflows helped by NFOs in December 2023

For the month of December 2023, all categories of equity funds, other than ELSS funds, saw positive flows. Total inflows into equity funds in the month of December 2023 stood at Rs16,997 crore, which is higher than November. Sectoral fund and small cap funds dominated the equity fund flow story in December 2023 and this was largely an outcome of NFOs. Equity NFOs contributed Rs7,812 crore to the equity inflow kitty, with sectoral fund NFOs accounting for more than half of these inflows.

Sectoral Funds led the equity inflow story in December 2023 at 6,006 crore. Among other significant contributors; Small Cap funds saw net inflows of Rs3,858 crore, Flexi/Multi Cap funds Rs2,939 crore, large & mid-cap funds Rs2,339 crore, mid-cap funds Rs1,393 crore, and value funds Rs1,269 crore.  Much of the inflow of thematic funds came from NFOs and robust SIP flows also contributed in good measure. If you combine the major categories getting inflows like small cap funds, sectoral funds, thematic funds, flexi cap fund and mid-cap funds; the focus is entirely on alpha hunting.

Hybrid flows flatter, as passive flows stagnate

Overall, the combination of hybrid funds and solution funds got net inflows of Rs15,229 crore and is emerging as a major flow driver. However, the macro picture glosses over the fact that the 2 fund categories dominated total flows in December 2023 and accounted for 80% of the net flows into this category. The inflow story in the hybrid category was all about arbitrage funds with net inflows of Rs10,645 crores and multi-asset allocation funds with net inflows of Rs2,421 crore. However, even dynamic asset allocation funds (BAFs) saw inflows of Rs1,369 crore while equity savings funds also saw net inflows of Rs1,080 crore. Even if you look at arbitrage fund, largely cannibalizing the liquid funds, it looks like investors are getting in the whole of idea of asset allocation and spreading money across asset classes.

Passive funds had a relatively tepid month in December 2023 with net inflows lower at just Rs573 crore; sharply lower than the previous month. This was driven by inflows of Rs703 crore into index funds, and Rs200 into index ETFs. International FOFs, actually saw net outflows in the month of December 2023.

The story from here on is about building momentum

We will spend our closing remarks on the record AUM of Rs50.78 trillion that the Indian mutual funds have achieved as of the close of December. That translates into total mutual fund AUM of around $610 billion. If you compare with the situation in the US, it took the US market more than 60 years of mutual funds to be able to touch $1 trillion in mutual fund AUM. However, the mutual fund AUM in the US moved from $1 trillion to $5 trillion in the next 10 years. From that point, the AUM has traversed to the current level of $25 trillion; i.e., five-fold growth in next 25 years.

The moral of the story for India is that it is the first $1 trillion that is the toughest journey. The easier part, and the more exciting part of growth in mutual fund AUM may be ahead.