Mutual fund folio growth: how the August 2023 story panned out

12 Sep 2023 , 09:10 AM

The month of August 2023 was again a month of robust SIP flows, with gross SIP flows touching record levels of Rs15,813 crore mark for the first time. The SIP stoppage ratio has also gone up in August 2023, but that is understandable amidst new highs in the markets and rising tide of uncertainty. In the month of August, the fresh flows into mutual funds were triggered by NFO flows and SIP flows; as equity funds accounted for more than 70% of the NFO flows in the month. However, the SIP flows and the mutual fund flows do not exactly give a very credible idea of retail participation or the retail intensity of the flows. That is why, a more foolproof and credible mechanism of judging the retail participation is the rate of folios growth. Let us spend a moment on understanding what folios are about.

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. 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. Folios may not really 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 the folios have grown and also valuable insights into trends in retail behaviour. Here we look at how the year-on-year mutual fund folio growth across various categories of mutual funds panned out between August 2022 and August 2023. 

MF Folios: Macro picture for August 2023

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

Macro picture	Total Folios Aug-23	Total Folios Aug-22	Folio Growth
Open ended Funds	15,36,09,751	13,59,69,514	12.97%
Closed Ended and Interval Funds	6,31,826	5,05,304	25.04%
Grand Total	15,42,41,577	13,64,74,818	13.02%

Data Source: AMFI 

At a macro level, the total number of mutual fund folios as of August 2023 stood at 15.42 folios, compared to 15.14 crore folios one-month ago. On a yoy basis over August 2022, total folios are up 13.02% overall, which is better than the growth seen in July 2023. Unlike the previous months, the growth has come from open-ended schemes as well as closed ended schemes. For instance, the folio growth of open ended funds was 12.97%, while close-ended fund folios saw expansion in folios by 25.04%,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 0.41% of the total mutual fund folios in India.

Debt fund folios grow marginally in August 2023

Debt fund folios have been under persistent pressure in last few months, but August 2023 marked the second month of a positive turnaround with the total number of debt fund folios increasing by 0.50% in the month of August 2023 compared to August 2022. The turnaround was seen last month, when debt fund folios had grown by 0.17%.

Macro picture	Total Folios Aug-23	Total Folios Aug-22	Folio Growth
Long Duration Fund	47,453	26,037	82.25%
Overnight Fund	7,62,912	6,08,994	25.27%
Gilt Fund	1,81,526	1,72,746	5.08%
Ultra Short Duration Fund	6,45,997	6,20,888	4.04%
Money Market Fund	4,34,688	4,17,852	4.03%
Dynamic Bond Fund	2,30,149	2,22,528	3.42%
Liquid Fund	17,97,419	17,52,790	2.55%
Corporate Bond Fund	6,06,872	6,29,857	-3.65%
Medium Duration Fund	2,50,419	2,62,892	-4.74%
Medium to Long Duration Fund	1,05,893	1,12,528	-5.90%
Low Duration Fund	9,29,069	9,95,936	-6.71%
Gilt Fund with 10 year constant duration	41,330	44,501	-7.13%
Short Duration Fund	4,94,329	5,35,625	-7.71%
Floater Fund	2,29,032	2,51,047	-8.77%
Banking and PSU Fund	2,81,393	3,17,833	-11.47%
Credit Risk Fund	2,30,733	2,60,902	-11.56%
Total of Debt Funds	72,69,214	72,32,956	0.50%

Data Source: AMFI

What are the key takeaways from a yoy comparison of debt fund folios as of August 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. The leader of the pack was Long duration fund folios, which grew 82.25% on yoy basis, albeit on a relatively small base. However, overnight funds grew folios at 25.27%, even on a much larger base. However, 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.

This could be an outcome of the RBI pausing on rates since February 2023. The RBI decision to hold rates in April, June, and August has ratified the perception that; markets are either at the peak or close to the peak. 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 more of discretion to the fund manager. Debt fund folios in August 2023 expanded by 0.50%, compared to 0.17% in July 2023; -0.86% in June 2023; -1.30% in May; -2.26% in April and a steep fall of -3.07% in March 2023. The turnaround into positive territory is building heft.

Equity fund folios witness a sharp growth in August 2023

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

Macro picture	Total Folios Aug-23	Total Folios Aug-22	Folio Growth
Small Cap Fund	1,38,46,150	88,89,305	55.76%
Multi Cap Fund	46,66,295	35,16,764	32.69%
Dividend Yield Fund	7,75,683	5,88,848	31.73%
Mid Cap Fund	1,16,25,895	94,20,335	23.41%
Value Fund/Contra Fund	51,83,298	42,52,900	21.88%
Large & Mid Cap Fund	81,92,387	72,58,212	12.87%
Sectoral/Thematic Funds	1,39,26,575	1,24,55,739	11.81%
ELSS	1,53,81,023	1,42,94,155	7.60%
Flexi Cap Fund	1,30,00,422	1,22,85,444	5.82%
Large Cap Fund	1,30,04,992	1,28,32,758	1.34%
Focused Fund	51,81,471	53,10,404	-2.43%
Grand total	10,47,84,191	9,11,04,864	15.01%

Data Source: AMFI

Once again in August 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 August 2023 was Focused Funds, with folios shrinking by -2.43%. This is more due to the base effect. Small cap funds, once again, topped the folios growth at 55.76%, largely on account of NFOs, but also on account of alpha hunting. This is despite the fact that several funds have restricted small cap fund flows due to limited availability of quality small cap stocks in the market. Small Cap Folios tend to spike faster at market highs, but could now temper, if the restrictions continue.

Oher growth stories in terms of equity fund folios were multi-cap funds at 32.69%, dividend yield funds at 31.73%, mid-cap funds at 23.41%, and value / contra funds at 21.88%. 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 attributed to 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. Equity fund folios in August 2023 grew at 15.01% in August 2023, compared to 13.66% in July, and 12.34% in June 2023. With NFOs picking up in August and SIPs at record levels, the folios story is surely gathering steam in active equity funds. 

Hybrid fund folio growth marred by arbitrage 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). This is ironic because the arbitrage funds saw the maximum net inflows among hybrid funds in August 2023, and could be a sign of consolidation of inflows. Arbitrage funds are classified as hybrid funds, but are effectively a treasury product and compete with short-term debt parking funds.

Macro picture	Total Folios Aug-23	Total Folios Aug-22	Folio Growth
Multi Asset Allocation Fund	12,19,116	8,34,709	46.05%
Retirement Fund	27,91,050	27,04,817	3.19%
Conservative Hybrid Fund	5,28,375	5,15,506	2.50%
Aggressive Hybrid Fund	53,16,778	52,18,497	1.88%
Equity Savings Fund	3,71,658	3,66,286	1.47%
Childrens Fund	29,40,947	29,03,665	1.28%
Dynamic Asset Allocation/BAF	43,20,241	44,14,372	-2.13%
Arbitrage Fund	4,42,592	4,94,632	-10.52%
Grand Total	1,79,30,757	1,74,52,484	2.74%

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 -10.52% in folios while Dynamic Asset Allocation Funds (BAFs) saw contraction of -2.13% in August 2023 due to a high base. In recent months, the big star in terms of folio accretion has been multi-asset allocation funds; despite the base having grown now. That is because a lot of the NFOs are gathering retail interest in the light of the novelty of the product and the ability of the product to offer an automatic hedge.

The 46.05% 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. All other categories saw single-digit growth in folios. The number of folios in arbitrage funds contracted -10.52% amidst volatile markets and a strong base in 2022. For the hybrid category of funds, number of folios grew by 2.74% in August 2023 compared to 3.3% in July and June 2023, 3.65% in May 2023, and 4.23% in April 2023. The momentum is tapering, largely due to arbitrage funds, seeing folio contraction.

Passive fund folios are still attractive in August 2023

Under passive category, we have included equity and debt related index products, apart from gold funds and Fund of Funds (FOF). These are essentially benchmarked products with no active role for the fund manager. 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; with fund managers focused on minimizing tracking error.

Macro picture	Total Folios Aug-23	Total Folios Aug-22	Folio Growth
Index Funds	51,13,123	28,29,331	80.72%
Fund of funds investing overseas	13,82,783	12,46,685	10.92%
Other ETFs	1,23,34,415	1,14,93,468	7.32%
GOLD ETF	47,95,268	46,09,726	4.03%
Grand Total	2,36,25,589	2,01,79,210	17.08%

Data Source: AMFI

Passive funds are the only category where all the 4 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, index ETFs, FOFs and gold funds have seen a spike in the number folios, as investors discover the merits of passive investing, due to its simplicity and cost effectiveness. Passive fund folio growth improved to 17.08% in August 2023; compared to 14.79% in July 2023, and 13.08% in June 2023. While the flows ay be tapering, the folio growth is still robust, which could be a good sign as it indicates broadening of the ownership base of passive funds.