MF flows hold above ₹1 Trillion as debt flows robust in August 2024

11 Sep 2024 , 03:06 PM

INVESTORS INFUSE ₹1.08 TRILLION INTO MUTUAL FUNDS IN AUGUST

The big news in August 2024 was that the debt funds have now seen positive net inflows in 4 out of the last 5 months. Clearly, this is not just about the cyclical shift to liquid and money market funds, but also a more secular bet on falling interest rates. That is logical, considering that Indian repo rates are already 135 bps above the pre-COVID rates and the real rates of interest in the Indian economy are now well above 2%. The story was not  just about debt funds, but equity Funds also saw the second highest monthly inflow in its history at ₹38,239 Crore. Of course, it was once again, the sectoral and thematic funds that led the flows into equity funds, but the story of NFOs and SIPs continued to remain strong, as we shall see later. More importantly, the flows into hybrid funds and passive funds also were robust in the month of August 2024.

With equities still outperforming in the long term and debt looking attractive from an interest rate standpoint, the flows were robust despite the volatile equity and debt markets in the month of August. The big news in August was the positive inflation data flows from India at 3.54%, which some may argue is more of a statistical aberration. However, there were other positive triggers for flows too. The US has almost committed to 25 bps rate cut in September and may even go up to 50 bps. The India GDP growth for Q1-FY25 may have been lower in real terms, but the nominal GDP growth was actually 120 bps higher, showing that inflation was the real issue for growth. A lot will now depend on the RBI, but if the Fed gets aggressive on rate cuts, then it is very likely that RBI may also follow suit. In fact, the fall in bond yields can be largely attributed to that particular factor.

STORY OF SIPS AND NFOS IN AUGUST 2024

Over the last few months, the SIP flows and the NFO flows have been the major swing factors for equity fund inflows. For the month of August 2024, the gross SIP flows were at a record level of ₹23,547 Crore, which is 0.92% higher than the SIP flows in July 2024. In FY25, SIP flows have been well above ₹20,000 Crore in all the five months; averaging ₹21,883 Crore; which is about 31.8% higher than the average monthly flows in the previous year. In a sense, the SIP flows are reflective of the financialization of savings and the financial planning approach that investors are increasingly taking with respect to managing their monies. Let us now turn our attention to the other big swing factor; the new fund offerings (NFOs).

For August 2024, mutual funds saw NFO flows of ₹13,815 Crore across 18 NFOs; compared to ₹16,565 Crore across 15 NFOs in the month of July 2024. Out of these 18 NFOs in August 2024, 5 NFOs from thematic funds and 1 NFO from large cap funds. The thematic funds alone accounted  for accounted for 73.8% of the total NFO flows in the month of August 2024. That is reflected in the monthly net inflows into equity funds; which has again been dominated by sectoral / thematic funds. The other NFOs in the month pertained to Dynamic Asset Allocation Funds (BAFs), index funds, index ETFs and ultra short duration funds.

WHO RULES THE ₹1 TRILLION CLUB

We now turn to our monthly update on the Trillion Rupee Club; with a look at entries and exits. The Trillion rupee club is a group of fund categories with over ₹1,00,000 Crore (or ₹1 Trillion) in AUM. Out of the 39 categories of open-ended funds, there are 21 open ended fund categories with AUM of over ₹1 Trillion; the same as last month. Out of the 16 active debt schemes, 6 categories are in the Trillion rupee club. This includes liquid funds, ultra-short duration funds, low duration funds, money market funds, corporate bond funds, and short duration funds. Corporate bond funds is the only long term category in this club. Other than liquid funds, which leads with net AUM of ₹5.10 Trillion, only money market funds has crossed the ₹2 Trillion mark in AUM.

What about active equity funds? A total of 10 out of the 11 equity funds had AUMs in excess of ₹1 Trillion with only dividend yield funds having an AUM of under ₹1 Trillion. Out of these 10 funds, 2 categories of equity funds (Flexi-Cap Funds and Sectoral / Thematic Funds) have AUMs of over ₹4 Trillion  . There are 3 categories of equity funds (large cap funds, mid-cap funds, small cap funds) having AUM in the range of ₹3 Trillion to ₹4 Trillion. In the next tier; the Large & Mid-Cap funds and ELSS Funds have an AUM range of ₹2 Trillion to ₹3 Trillion. Multi-cap funds, value funds and focused funds had AUM between ₹1 Trillion and ₹2 Trillion. Sectoral / Thematic funds are the are the largest category with August end AUM of ₹4.45 Trillion, followed closely by Flexi-Cap funds with net AUM of ₹4.29 Trillion. It is too early to say if the dominance of thematic funds should be seen as positive or a concern.

What about the hybrid and passive funds? Out of the 8 funds in the hybrids / solutions category, there are 3 funds in the ₹1 Trillion club with Aggressive Hybrid Funds and Dynamic Asset Allocation Funds (BAFs) already in the ₹2 Trillion club and Arbitrage Funds with an AUM of just below the ₹2 Trillion AUM mark. BAFs rule the AUM rankings, largely due to a predominance of NFOs in the category. Finally, let us turn to the passive funds category. Among passive funds AUM as of end August 2024; index funds and index ETFs are already in the Trillion AUM Club. If you look at all fund categories, across equity, debt, hybrids, and passives; index ETFs have the highest AUM at ₹7.94 Trillion. This is a mix of equity and bond index ETFs. Index ETFs AUM is largely dominated by domestic index ETFs on Nifty / Sensex.

MUTUAL FUNDS SUSTAIN STRONG INFLOWS IN AUGUST 2024

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 (₹ Crore)	Equity Fund Flows (₹ Crore)	Hybrid Fund Flows (₹ Crore)	Passive Fund Flows (₹ Crore)	Total MF Flows (₹ Crore)
Aug-23	(25,873)	20,245	17,273	4,535	16,181
Sep-23	(1,01,512)	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)
Jan-24	76,469	21,781	20,885	3,983	1,23,205
Feb-24	63,809	26,866	18,288	9,756	1,18,351
Mar-24	(1,98,299)	22,633	5,791	12,793	(1,59,387)
Apr-24	1,89,891	18,917	20,110	11,505	2,39,233
May-24	42,295	34,697	18,456	15,665	1,11,103
Jun-24	(1,07,358)	40,608	9,039	14,602	(43,109)
Jul-24	1,19,588	37,113	17,663	14,778	1,89,141
Aug-24	45,169	38,239	10,233	14,599	1,08,123

Data Source: AMFI (negative figures in brackets)

Here are some quick takeaways. Debt funds saw net inflows  of ₹45,169 Crore in August 2024. For a change, debt funds have seen net inflows in 4 out of the last 5 months. Equity fund inflows had touched a lifetime record in of ₹40,608 Crore in June 2024, and is slightly lower at ₹38,239 Crore in August 2024. In the last one year, the big story has been the emergence of hybrid funds as a viable option. Within the equity category, the focus is largely on the thematic / sectoral funds, which is more due to the NFO concentration.

HOW THE ₹66.7 TRILLION TOTAL AUM ADDS UP?

As of the close of August 2024, Indian mutual funds reported record AUM of ₹66.7 Trillion or $794 Billion. Here is a quick dekko at the AUM mix.

Month	Debt AUM (₹ Trillion)	Equity AUM (₹ Trillion)	Alternate AUM (₹ Trillion)	Total AUM (₹ Trillion)
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
Jan-24	13.77	22.50	16.17	52.74
Feb-24	14.50	23.12	16.62	54.54
Mar-24	12.62	23.49	17.02	53.40
Apr-24	14.59	24.74	17.66	57.26
May-24	15.12	25.40	18.13	58.91
Jun-24	14.13	27.68	19.08	61.16
Jul-24	15.44	29.34	19.92	64.97
Aug-24	16.00	30.09	20.35	66.70

Data Source AMFI

For August 2024, active debt fund AUM increased to ₹16.00 Trillion compared to ₹15.44 Trillion at the close of July 2024. This is the highest active debt fund AUM we have seen in the last one year and can be attributed to positive flows in 4 out of last 5 months. Debt fund AUM is up 3.63% over July 2024 and on a yoy basis up 14.29%. In August 2024, active equity fund AUM edged up to record levels of ₹30.09 Trillion; showing sequential growth of 2.56% and yoy growth in AUM of 61.77%. That is not surprising with the Nifty and Sensex near lifetime highs. Alternate assets saw AUM grow by 2.16% sequentially and 48.11% yoy. Here are the AUM shares for the last 6 months

Month	Active Debt Funds	Active Equity Funds	Hybrid Funds	Passive Funds	Solution Funds	Close-ended Funds
Mar-24	23.64%	43.99%	13.53%	17.50%	0.83%	0.51%
Apr-24	25.48%	43.21%	13.23%	16.81%	0.80%	0.46%
May-24	25.67%	43.11%	13.28%	16.70%	0.80%	0.44%
Jun-24	23.11%	45.26%	13.24%	17.14%	0.82%	0.43%
Jul-24	23.77%	45.16%	13.00%	16.86%	0.80%	0.41%
Aug-24	23.98%	45.11%	13.70%	16.80%	0.80%	0.40%

If you take a 5-month perspective (August 2024 over March 2024), share of active equity fund AUM is up 112 bps, debt fund AUM is up 34 bps, and share of hybrid funds is up 17 bps. The share of passive funds is down 70 bps over March 2024. The fall in share of passive funds is more due to the rise in share of other categories like debt funds in this period.

ACTIVE DEBT FUNDS: ANOTHER ROBUST MONTH FOR SHORT END FUNDS

Debt funds saw net inflows of ₹45,169 Crore in August 2024, marking the fourth month of positive flows in the last 5 months. That is a positive secular signal. There were limited outflows from debt funds in August 2024 with some of them being; Banking & PSU Funds (₹1,550 Crore), Floater Funds (₹677 Crore), and Credit Risk Funds (₹390 Crore). Negative flow in debt funds in August 2024 were few and far between.

Among the debt fund categories that saw net inflows in August 2024 were Overnight Funds at ₹15,106 Crore, Liquid Funds at ₹13,595 Crore, Money Market Funds at ₹10,093 Crore, Short Duration Funds at ₹4,360 Crore, Gilt Funds at ₹1,902 Crore, Long Duration Funds ₹982 Crore, and ultra short duration funds ₹696 Crore. There were a few other funds also with positive inflows in the debt funds category, but they were not too material. It was treasury funds that again dominated the inflows; but September could see selling pressure.

ACTIVE EQUITY FUNDS: SECOND HIGHEST MONTHLY FLOWS

For the month of August 2024, equity funds saw robust net inflows of ₹38,239 Crore, the second best level ever, after June 2024. In the last 4 months, the equity fund flows have averaged over ₹37,500 Crore. Once again, Sectoral / Thematic funds dominated inflows at ₹18,117 Crore; largely led by the thematic NFOs account for over 73% of all NFO flows in August 2024. The other fund categories that saw net inflows in August 2024 include; flexi cap/ multi-cap funds ₹5,988 Crore, Large & Mid Cap funds ₹3,294 Crore, Small Cap Funds ₹3,209 Crore, mid-cap funds ₹3,055 Crore, Large cap funds ₹2,637 Crore, and value funds ₹1,728 Crore. ELSS funds and Focused funds continued to see negative flows in August 2024.

HYBRID FLOWS TAPER; PASSIVE FLOWS STABLE

The combination of hybrid funds and solution funds got net inflows of ₹10,233 Crore, sharply lower than in July 2024. In the hybrid category, net inflows into Dynamic Allocation Funds (BAFs) dominated at ₹3,215 Crore, thanks to the Canara Robeco BAF NFO. What about other categories? Multi-asset allocation funds saw net inflows of ₹2,827 Crore, Arbitrage funds ₹2,372 Crore, and equity savings funds ₹1,457 Crore. Multi asset allocation funds, BAFs have attracted attention in recent months as automated asset allocators.

Passive funds had a relatively steady month in August 2024 with net inflows steady at ₹14,599 Crore. This was driven by inflows of ₹10,094 Crore into Index ETFs, ₹3,247 Crore into index Funds, and ₹1,611 Crore of net inflows into Gold Funds; which is starting to attract attention on Fed rate cut hopes. A rate cut by the Fed reduces the opportunity cost of holding gold and makes it more attractive. Fund of funds continued to see negative flows, largely due to the restrictions imposed on such international FOFs.

WHAT WE READ FROM THE AMFI DATA

There were 4 quick takeaways from the mutual fund flows data for August 2024. Firstly, the debt fund flows have been robust for 4 of the last 5 months, but continues to focus at the short end of the yield curve. Secondly, equity funds are seeing a lot of interest in sectoral and thematic funds; but that is more due to the restrictions on the number of other funds that the AMC can have. However, the dominance of thematic flows has always been a risk. Thirdly, SIP flows have been steadily growing for over a year now and shows the coming of age of the Indian mutual fund investor. Finally, investors are selecting hybrid funds with focus on asset allocation; which is a good sign. Of course, one must not forget that the appetite for passive funds is robust once again!