Mutual fund folio growth: here is how the September 2023 story panned out

12 Oct 2023 , 07:05 AM

The month of September 2023 was again a month of record SIP flows, with gross SIP flows touching an all-time high of Rs16,420 crore for the first time ever. The SIP stoppage ratio has also gone up in September 2023, but that is understandable amidst new highs in the markets and rising tide of uncertainty, as reflected in the sharp gyrations in the Nifty and Sensex. In the month of September, the fresh flows into mutual funds were triggered by NFO flows and SIP flows; as equity funds and hybrid funds accounted for bulk of the net inflows in a month when debt funds sold off in a big way to the tune of more than Rs1 trillion on a net basis. The million dollar question is whether all these flows really give a good picture of retail participation or is it just intuitive. A more foolproof and credible mechanism of judging the retail participation is the rate of folios growth. 

Mutual Fund Folios are unique investor accounts with a particular asset management company (AMC). That means, a person having investments across multiple AMCs would typically have multiple folios; a unique folios per AMC. However, even if you factor in the risk of multiple folios, the folio growth or the account growth is a much better picture of retail spread and the retail intensity of mutual fund flows, as compared to the rupee flows. Folios do not change much in a short span of time, but if you look at folios over a 1 year period (yoy basis), it gives a vivid picture of how folios have grown and also valuable insights into trends in retail behaviour. Here we look at how the year-on-year mutual fund folios grew across categories of mutual funds between September 2022 and September 2023. 

MF Folios: Macro picture for September 2023

How does the macro picture for September 2023 for mutual fund folios look like across open-ended and close-ended funds?

Macro picture	Total Folios Sep-23	Total Folios Sep-22	Folio Growth
Open ended Funds	15,64,84,087	13,75,86,820	13.73%
Closed Ended and Interval Funds	6,12,100	5,00,508	22.30%
Grand Total	15,70,96,187	13,80,87,328	13.77%

Data Source: AMFI 

At a macro level, the total number of mutual fund folios as of September 2023 stood at 15.71 crore folios, compared to 15.42 crore folios one-month ago. On a yoy basis over September 2022, total folios are up 13.77% overall, which is better than the growth seen in August 2023 and July 2023. Like in August, even the folio growth in folios in September 2023 has come from open ended and closed ended folios. For instance, the folio growth of open ended funds was 13.73%, while close-ended fund folios saw expansion in folios by 22.30%,albeit on a much smaller base. In the last one year, the NFOs from some of the fixed term plans (FTPs) have resulted in a sharp spike in closed ended folios on yoy basis. However, despite this positive picture, the close-ended folios account for just about 0.39% of the total mutual fund folios in India.

Debt fund folios grow marginally in September 2023

Debt fund folios have been under persistent pressure in last few months, but September 2023 marked the third month of a positive turnaround with the total number of debt fund folios increasing by 0.76% yoy. The turnaround was seen in July 2023 and since then, the yoy growth in debt fund folios has been on the positive side.

Macro picture	Total Folios Sep-23	Total Folios Sep-22	Folio Growth
Long Duration Fund	47,417	26,259	80.57%
Overnight Fund	7,87,375	6,11,525	28.76%
Gilt Fund	1,80,961	1,71,195	5.70%
Money Market Fund	4,39,558	4,20,264	4.59%
Dynamic Bond Fund	2,27,917	2,18,018	4.54%
Ultra Short Duration Fund	6,44,072	6,21,847	3.57%
Liquid Fund	17,97,810	17,53,272	2.54%
Medium to Long Duration Fund	1,05,080	1,08,680	-3.31%
Corporate Bond Fund	6,04,977	6,32,920	-4.41%
Medium Duration Fund	2,47,469	2,58,984	-4.45%
Gilt Fund with 10 year constant duration	40,773	43,862	-7.04%
Low Duration Fund	9,16,847	9,86,513	-7.06%
Short Duration Fund	4,89,352	5,30,585	-7.77%
Floater Fund	2,28,427	2,48,588	-8.11%
Credit Risk Fund	2,27,228	2,58,089	-11.96%
Banking and PSU Fund	2,74,697	3,14,405	-12.63%
Total of Debt Funds	72,59,960	72,05,006	0.76%

Data Source: AMFI

What are the key takeaways from a yoy comparison of debt fund folios as of September 2023. Out of the 16 categories of debt funds available in India as per AMFI classification, 7 categories showed at least 1% expansion in the number of folios, while the other 9 fund categories saw contraction in folios. The ratio of contracting folios to expanding folios has been static since May 2023 at 9:7. The leader of the pack was Long duration fund folios, which grew 80.57% yoy, albeit on a relatively small base. However, overnight funds grew folios at 28.76%, even on a much larger base. The broad message is that investors are more than willing to lock themselves into longer durations at higher yields. Even gilt funds and dynamic bond funds have seen positive growth in folios on yoy basis and are in top-5.

This could be an outcome of the RBI pausing on rates since February 2023. In October, it paused for the fourth time in a row since April 2023. The RBI decision to hold rates in April, June, August, and October 2023 has ratified the perception that; markets are either at the peak or close to the peak of rates. The standard suspects in the negative folio growth among debt funds were categories like credit risk funds, banking & PSU funds, floater funds and short duration funds. Folio growth has been negative where there is asset quality risk or where there is too much managerial discretion; something investors are not too happy with. Debt fund folios in September 2023 expanded by 0.76% yoy, the best in recent months. Previously, yoy folio growth was 0.50% in August 2023 and 0.17% in July 2023. In months prior to July 2023, the yoy folio growth for debt funds was negative.

Equity fund folios again see sharp growth in September 2023

In contrast to debt funds, there was no ambivalence in the growth of equity fund folios in September 2023. In the case of equity funds, the macro level folio expansion improved to 15.75% in September 2023 compared to 15.01% in August 2023, 13.66% in July 2023, 12.71% in June 2023, and 12.34% in May 2023. The folio growth has been steady.

Macro picture	Total Folios Sep-23	Total Folios Sep-22	Folio Growth
Small Cap Fund	1,46,84,798	92,47,406	58.80%
Multi Cap Fund	48,31,118	35,98,855	34.24%
Dividend Yield Fund	7,85,733	5,90,901	32.97%
Mid Cap Fund	1,19,56,147	96,72,659	23.61%
Value Fund/Contra Fund	53,08,373	43,09,767	23.17%
Sectoral/Thematic Funds	1,43,15,827	1,26,25,526	13.39%
Large & Mid Cap Fund	82,99,513	73,60,105	12.76%
ELSS	1,54,23,310	1,43,70,815	7.32%
Flexi Cap Fund	1,31,61,385	1,24,43,255	5.77%
Large Cap Fund	1,30,47,923	1,28,73,410	1.36%
Focused Fund	51,59,456	53,28,712	-3.18%
Total of Equity Funds	10,69,73,583	9,24,21,411	15.75%

Data Source: AMFI

Once again in September 2023, a total of 10 out of the 11 categories of equity funds as per AMFI classification saw accretion in folios. That is 91% strike rate. The only fund category to see contraction in folios in September 2023 was Focused Funds, with folios shrinking by -3.18%. This is more due to the base effect and the absence of NFOs. Small cap funds, once again, topped the folios growth at 58.80%, despite few NFOs, as there is a retail rush for such alpha generating funds. Apart from small cap funds, other sectoral and alpha bets have also seen traction in terms of folio growth.

Oher growth stories in terms of equity fund folios were multi-cap funds at 34.24%, dividend yield funds at 32.97%, mid-cap funds at 23.61%, and value / contra funds at 23.17%. The rankings on folios growth are almost the same as previous months, barring some minor changes. This surge in folios in active equity funds can be explained by the combined impact of NFOs and record SIP flows. Large cap folio growth appears to be facing stiff competition from the passive index funds and index ETFs. The other shift is from flexi cap funds to multi-cap funds; as people are starting to trust a rule more than fund manager discretion. Equity fund folios in September 2023 grew at 15.75% compared to 15.01% in August 2023, 13.66% in July, and 12.34% in June 2023. Irrespective of the quantum of flows, the traction in folio growth of equity funds appears to be robust.

Hybrid folio growth dominated by multi-asset allocation funds

Here we have combined hybrid funds with solution-based funds to give a more realistic picture of hybrids. Folios have grown across categories, except arbitrage funds and dynamic asset allocation funds (BAFs). Ironically, Arbitrage Fund have attracted the maximum flows, but these are institutional funds, so folios may not matter much. Arbitrage funds are classified as hybrid funds, but are effectively a treasury product.

Macro picture	Total Folios Sep-23	Total Folios Sep-22	Folio Growth
Multi Asset Allocation Fund	14,15,518	8,43,516	67.81%
Retirement Fund	27,99,015	27,19,117	2.94%
Conservative Hybrid Fund	5,31,595	5,17,464	2.73%
Equity Savings Fund	3,75,920	3,66,524	2.56%
Aggressive Hybrid Fund	53,30,143	52,49,546	1.54%
Childrens Fund	29,44,907	29,06,735	1.31%
Dynamic Asset Allocation / BAFs	43,41,033	44,53,840	-2.53%
Arbitrage Fund	4,51,213	4,88,524	-7.64%
Total of Hybrid Funds	1,81,89,344	1,75,45,266	3.67%

Data Source: AMFI

Out of the 8 categories of hybrid and solution-based funds available in India as per the AMFI classification, 6 categories saw folio expansion. Arbitrage funds saw contraction of -7.64% in folios while Dynamic Asset Allocation Funds (BAFs) saw contraction of -2.53% in September 2023 due to a high base. In recent months, the big folio growth leader has been multi-asset allocation funds; despite the base having grown now. This is largely driven by NFOs; and in September 2023 alone, multi-asset allocation funds accounted for 62% of all NFO flows. 

The 67.81% folio growth in multi-asset allocation funds continues to be the highlight of hybrid fund folios growth. Most investors are looking to auto hedge risks by spreading across asset classes and this is the best route. All other categories saw single-digit growth in folios. For the hybrid category of funds, number of folios grew by 3.67% in September 2023 compared to 2.74% in August 2023, 3.3% in July and June 2023, 3.65% in May 2023, and 4.23% in April 2023. The momentum is too volatile to really take a call on the direction.

Passive fund folios are still growing at a robust pace

Under passive category, we have included equity and debt related index products, apart from gold funds and Fund of Funds (FOF). These are benchmarked products with no active role for the fund manager. The focus is more on minimizing the tracking error. The idea is to include fund categories where the intent is not to generate alpha but to passively mirror an index or underlying asset class.

Macro picture	Total Folios Sep-23	Total Folios Sep-22	Folio Growth
Index Funds	53,88,470	29,08,897	85.24%
Fund of funds investing overseas	14,04,536	12,56,035	11.82%
Other ETFs	1,24,62,054	1,16,05,124	7.38%
GOLD ETF	48,06,140	46,45,081	3.47%
Grand Total	2,40,61,200	2,04,15,137	17.86%

Data Source: AMFI

Passive funds are the only category where all the categories saw expansion in the number of folios. Passive fund folios gained from targeted NFOs and a preference for passive products; on the equity and debt side. Index funds dominated the folio growth at 85.24% followed by FOFs at 11.82%. Index ETFs and gold ETF followed behind with single-digit folio growth. Passive fund folio growth improved to 17.86% in September 2023, compared to 17.08% in August 2023, 14.79% in July 2023, and 13.08% in June 2023. Despite flows plateauing, the folios are still growing and that is a positive indication that passive fund ownership base is broadening. That is good news!