Mutual fund folio growth: how the July 2023 story panned out?

14 Aug 2023 , 09:55 AM

The month of July 2023 was again a month of robust SIP flows. Total SIP flows in July 2023 crossed the Rs15,000 crore mark for the first time, scaling up to Rs15,245 crore. Of course, these are flows at a gross level, but even the SIP stoppage ratio is marginally lower in July 2023, so the overall news flows on mutual fund SIPs is good. In the month of July, the fresh flows into mutual funds were triggered by NFO flows and SIP flows. Of course, half of NFO flows in July 2023 belonged to the debt funds, but the numbers were still a good base. However, the SIP flows and the mutual fund flows do not exactly give a very credible idea of retail participation. A more foolproof mechanism of judging the retail participation is the rate of folios growth. What exactly are these folios all about?

Now Mutual Fund Folios are the unique accounts for each investor that is unique to an asset management company (AMC). That means, a person having investments across multiple AMCs can have multiple folios. However, even if you factor in these multiple folios, the folio growth or the account growth gives a reasonably good picture of retail spread of mutual funds and the retail intensity of the overall participation. Folios do not change much in a short span of time, but if you look at folios over a 1 year period, it gives you a vivid picture of how the folios have grown and also valuable insights into trends in retail behaviour. Here is a quick comparison of year-on-year mutual fund folio growth for various categories of mutual funds; between July 2022 and July 2023. 

MF Folios: Macro picture for July 2023

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

Macro picture	Total Folios Jul-23	Total Folios Jul-22	Folio Growth
Open ended Funds	15,09,87,781	13,50,76,748	11.78%
Closed Ended and Interval Funds	4,33,489	4,96,905	-12.76%
Grand Total	15,14,21,270	13,55,73,653	11.69%

Data Source: AMFI 

At a macro level, the total number of mutual fund folios as of July 2023 stood at 15.14 crore against 14.91 crore folios one-month ago. On a yoy basis over July 2022, total folios are up 11.69% overall, which is better than the growth seen in June 2023. However, the growth has predominantly come from open-ended schemes with folio growth of 11.78%, while close-ended fund folios saw contraction in folios by -12.76%. That is not surprising considering that close-ended folios account for just about 0.29% of the total mutual fund folios in India.

Debt fund folio growth finally turns into positive in July 2023

Debt fund folios have been under persistent pressure in last few months, but July 2023 marked a small turnaround with the total number of debt fund folios increasing marginally by 0.17% in the month of July 2023 compared to July 2022. It is small but encouraging.

Macro picture	Total Folios Jul-23	Total Folios Jul-22	Folio Growth
Long Duration Fund	47,731	23,848	100.15%
Overnight Fund	7,20,682	6,14,247	17.33%
Gilt Fund	1,81,427	1,71,254	5.94%
Ultra Short Duration Fund	6,47,116	6,16,009	5.05%
Money Market Fund	4,34,366	4,16,108	4.39%
Dynamic Bond Fund	2,32,024	2,23,827	3.66%
Liquid Fund	17,99,501	17,51,686	2.73%
Gilt Fund with 10 year constant duration	41,832	42,393	-1.32%
Corporate Bond Fund	6,08,834	6,34,713	-4.08%
Medium Duration Fund	2,53,075	2,65,574	-4.71%
Medium to Long Duration Fund	1,06,719	1,13,099	-5.64%
Low Duration Fund	9,33,671	10,04,139	-7.02%
Short Duration Fund	5,00,046	5,40,403	-7.47%
Floater Fund	2,31,370	2,53,053	-8.57%
Banking and PSU Fund	2,85,661	3,13,127	-8.77%
Credit Risk Fund	2,34,415	2,62,757	-10.79%
Total of Debt Funds	72,58,470	72,46,237	0.17%

Data Source: AMFI

What are the key takeaways from a yoy comparison of debt fund folios as of July 2023. Out of the 16 categories of debt funds available in India as per the AMFI classification, 7 categories showed at least 1% expansion in the number of folios, while the remaining 9 fund categories saw contraction in folios. This ratio is same as in May 2023, although the month of July 2023 saw debt fund folios registering positive growth compared to contraction in May and June. Long duration fund folios more than doubled on a yoy basis, but this growth has come on a relatively small base, so it cannot exactly be taken as conclusive. However, it does indicate that investors are now more than willing to lock themselves into longer durations at higher yields. More so, since the RBI appears to be hinting at topping of rates.

The RBI decision to hold rates in April, June, and August has broadly ratified the perception in the market that; markets are either at the peak or tantalizingly close to the peak. Overnight funds also attracted a lot of treasury interest with 17.33% growth in folios. Other than these two, even gilt funds, ultra-short duration funds, money market funds and dynamic bond funds saw healthy accretion in folios in July 2023. The categories that saw the maximum shrinkage of folios were the discretionary debt fund categories like credit risk funds, Banking / PSU funds, floater funds, short duration funds, and Low duration funds. Debt fund folios in July 2023 expanded by 0.17%; progressively better compared to -0.86% in June 2023; -1.30% in May; -2.26% in April and a steep fall of -3.07% in March 2023.

Equity fund folios robust, with a pick-up in July 2023

In contrast to debt funds, there was no ambivalence in the growth of equity fund folios once again in July 2023. In the case of equity funds, the macro level folio expansion improved to 13.66% in July 2023 compared to 12.71% in June 2023 and 12.34% in May 2023.

Macro picture	Total Folios Jul-23	Total Folios Jul-22	Folio Growth
Small Cap Fund	1,30,15,548	86,59,248	50.31%
Dividend Yield Fund	7,63,914	5,87,383	30.05%
Multi Cap Fund	44,53,227	34,59,965	28.71%
Mid Cap Fund	1,13,13,470	92,45,074	22.37%
Value Fund/Contra Fund	50,53,888	42,03,723	20.22%
Large & Mid Cap Fund	80,81,426	71,81,262	12.53%
Sectoral/Thematic Funds	1,35,65,765	1,24,55,778	8.91%
ELSS	1,53,25,099	1,42,34,392	7.66%
Flexi Cap Fund	1,28,46,852	1,21,57,663	5.67%
Large Cap Fund	1,29,65,360	1,27,98,164	1.31%
Focused Fund	52,01,169	52,70,192	-1.31%
Total of Equity Funds	10,25,85,718	9,02,52,844	13.66%

Data Source: AMFI

A total of 10 out of the 11 categories of equity funds as per AMFI classification saw accretion in folios, which is a whopping 91% strike rate. The only fund category to see contraction in folios in July 2023 was Focused Funds, which saw folios shrink by -1.31%. This is more due to the base effect. Small cap funds, once again, topped the folios growth at 50.31%, largely on account of NFOs, but more on alpha hunting. This is despite several funds restricting small cap fund flows due to paucity of choice. Small Cap Folios tend to spike faster at market highs, but could now temper if the mutual fund restrictions on these schemes add up.

Oher growth stories in terms of equity fund folios were dividend yield funds at 30.05%, multi-cap funds at 28.71%, mid-cap funds at 22.37%, and value / contra funds at 20.22%. The rankings on folios growth are almost the same as previous months. This surge in folios in active equity funds can be attributed to the cumulative 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 July 2023 grew at a robust 13.66% compared to 12.34% in June 2023. However, it must be said that the momentum, which was tapering in the last few months, has once again picked up steam in July 2023.

Hybrid fund folio growth pulled down by arbitrage funds

Here we have combined hybrid funds with the solution-based funds to give a more realistic picture. Folios have grown across categories, except arbitrage funds, which saw contraction in folios due to large scale treasury redemptions during the year. Here it must be remembered that while arbitrage funds are classified as hybrid funds, they are effectively a treasury product and compete with short-term debt parking products.

Macro picture	Total Folios Jul-23	Total Folios Jul-22	Folio Growth
Multi Asset Allocation Fund	11,78,713	8,29,737	42.06%
Retirement Fund	27,82,143	26,98,992	3.08%
Aggressive Hybrid Fund	52,99,241	51,91,744	2.07%
Conservative Hybrid Fund	5,23,207	5,13,330	1.92%
Dynamic Asset Allocation / BAF	44,43,098	43,86,473	1.29%
Childrens Fund	29,36,379	29,00,909	1.22%
Equity Savings Fund	3,66,513	3,66,728	-0.06%
Arbitrage Fund	4,38,865	5,00,402	-12.30%
Total of Hybrid Funds	1,79,68,159	1,73,88,315	3.33%

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 expansion in folios. Arbitrage funds saw contraction of -12.30% in folios while Equity Savings Funds saw a marginal contraction of -0.06% in July 2023 folios. This has been the typical narrative in the last 3 months. In recent months, the big star in terms of folio accretion has been multi-asset allocation funds; despite the base having grown now. 

The 42.06% folio growth in multi-asset allocation funds can be attributed to a slew of NFOs in recent times and also the advantage of being able to spread across diverse asset classes. 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 -13.45% amidst volatile markets and a strong base in 2022. Overall, for the category, number of folios grew at 3.3% in July 2023 compared to 3.30% in June, 3.65% in May and 4.23% in April 2023. The momentum is tapering, largely due to arbitrage funds.

Passive fund folios sustain momentum in July 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. 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 and focus more on minimizing the tracking error.

Macro picture	Total Folios Jul-23	Total Folios Jul-22	Folio Growth
Index Funds	48,14,292	27,51,698	74.96%
Fund of funds investing overseas	13,74,053	12,60,136	9.04%
Other ETFs	1,22,12,329	1,15,34,916	5.87%
GOLD ETF	47,74,760	46,42,602	2.85%
Total of Passive Funds	2,31,75,434	2,01,89,352	14.79%

Data Source: AMFI

Passive funds are the only category where all the 4 categories saw expansion in the number of folios. The momentum of folio growth has surely improved over May 2023 and June 2023. Passive fund folios gained from targeted NFOs during the year plus the Bharat ETFs. 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 14.79% in July 2023 compared to around 13.08% growth evinced in in June 2023 and also in May 2023. However, the momentum of passive fund flows has tapered if you compare it with the pre-May 2023 period.