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

11 Jul 2023 , 09:52 AM

Now Mutual Fund Folios are the unique accounts for each investor unique to an AMC. That means, a person having investments across multiple AMCs can have multiple folios. However, even if you adjust for these multiple folios, the folio growth or the account growth gives a reasonably good picture of retail spread of mutual funds. Folios do not change much in a short span of time, but if you look at folios over 1 year, it gives you a vivid picture of how the folios have growth and which categories dominated retail wallet share. Here is a quick comparison of year-on-year mutual fund folio growth for various categories of mutual funds; between June 2022 and June 2023. 

MF Folios: Macro picture for June 2023

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

Macro picture	Total Folios Jun-23	Total Folios Jun-22	Folio Growth
Open ended Funds	14,86,89,499	13,41,74,661	10.82%
Closed Ended and Interval Funds	4,42,209	4,87,157	-9.23%
Grand Total	14,91,31,708	13,46,61,818	10.75%

Data Source: AMFI 

At a macro level, the total number of mutual fund folios as of June 2023 stood at 14.91 crore against 14.74 crore folios one-month ago. On a yoy basis over June 2022, total folios are up 10.75% overall. However, the growth has predominantly come from open-ended schemes with folio growth of 10.82%, while close-ended fund folios saw contraction in folios by -9.23%. That is not surprising considering that close-ended folios account for just about 0.30% of the total mutual fund folios in India.

Debt fund folios lower in June 2023, but fall is moderating

Debt fund folios continued to be under pressure in June 2023 and the yoy comparison clearly shows that the number of folios has fallen over June 2022 by -0.86%.

Macro picture	Total Folios Jun-23	Total Folios Jun-22	Folio Growth
Long Duration Fund	47,668	23,951	99.02%
Overnight Fund	6,94,136	6,11,507	13.51%
Gilt Fund	1,80,688	1,73,032	4.42%
Dynamic Bond Fund	2,32,991	2,24,531	3.77%
Ultra Short Duration Fund	6,37,819	6,14,710	3.76%
Money Market Fund	4,28,088	4,14,995	3.15%
Liquid Fund	17,78,066	17,49,619	1.63%
Gilt Fund with 10 year constant duration	42,164	42,765	-1.41%
Corporate Bond Fund	6,10,771	6,38,542	-4.35%
Medium Duration Fund	2,54,975	2,68,362	-4.99%
Medium to Long Duration Fund	1,06,555	1,13,016	-5.72%
Short Duration Fund	5,02,719	5,45,864	-7.90%
Low Duration Fund	9,30,843	10,13,889	-8.19%
Banking and PSU Fund	2,89,473	3,16,076	-8.42%
Floater Fund	2,32,214	2,54,706	-8.83%
Credit Risk Fund	2,38,230	2,64,066	-9.78%
Total of Debt Funds	72,07,400	72,69,631	-0.86%

Data Source: AMFI

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 fall in June is lower than in May. Long duration fund folios grew by a surprising 99.02%, but this growth has come on a relatively small base, so it can 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, considering that the RBI is hinting at topping of rates. 

The RBI decision to hold rates in April and June has broadly ratified that perception in the market. Overnight funds also attracted a lot of treasury interest with 13.51% growth in folios. The categories that saw the maximum shrinkage of folios were the discretionary debt fund categories like credit risk funds, floater funds, Banking / PSU funds and Low duration funds. Debt fund folios in June 2023 shrank by just -0.86%; progressively lower compared to -1.30% in May; -2.26% in April and -3.07% in March 2023.

Equity fund folios robust, growth also picks up in June 2023

In contrast to debt funds, there was no ambivalence in the growth of equity fund folios; which saw macro level expansion of 12.71% in June 2023 against 12.34% in May 2023.

Macro picture	Total Folios Jun-23	Total Folios Jun-22	Folio Growth
Small Cap Fund	1,22,67,299	84,79,510	44.67%
Dividend Yield Fund	7,52,821	5,84,894	28.71%
Multi Cap Fund	42,81,290	33,89,335	26.32%
Mid Cap Fund	1,10,49,628	91,32,054	21.00%
Value Fund/Contra Fund	49,36,198	41,56,360	18.76%
Large & Mid Cap Fund	79,86,403	70,88,163	12.67%
ELSS	1,53,01,801	1,41,88,907	7.84%
Sectoral/Thematic Funds	1,33,44,178	1,24,14,900	7.49%
Flexi Cap Fund	1,27,84,279	1,20,74,588	5.88%
Large Cap Fund	1,29,37,115	1,27,50,858	1.46%
Focused Fund	52,32,806	52,36,415	-0.07%
Total of Equity Funds	10,08,73,818	8,94,95,984	12.71%

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 like a 91% strike rate. The only fund category to see lower folios in June 2022 was Focused Funds, which saw folios shrink by a marginal -0.07%. Small cap funds, once again, topped the folios growth at 44.67%, largely on account of NFOs, but more due to alpha hunting. Small Cap Folios tend to spike faster at market highs, but could now temper as small cap funds are putting restrictions on fresh inflows. Oher growth stories in terms of equity fund folios were dividend yield funds at 28.71%, multi-cap funds at 26.32% and mid-cap funds at 21%. The rankings on folios growth are almost the same as in May. This surge in folios in active equity funds can be attributed to the cumulative impact of NFOs and record SIP flows. Equity fund folios in June 2023 was robust at 12.34%; but it must be said that the momentum is becoming gradually slower in the last few months.

Hybrid fund folios story grows but the pace tapers

Here we have combined hybrid funds with the solution-based funds to give a more complete picture. Folios have grown across categories, except arbitrage funds, which saw contraction in folios due to large scale treasury redemptions during the year.

Macro picture	Total Folios Jun-23	Total Folios Jun-22	Folio Growth
Multi Asset Allocation Fund	11,39,849	8,26,549	37.90%
Retirement Fund	27,74,489	26,96,013	2.91%
Balanced /Aggressive Hybrid Fund	52,91,966	51,57,150	2.61%
Conservative Hybrid Fund	5,19,553	5,10,428	1.79%
Dynamic Asset Allocation/BAF	44,30,919	43,58,661	1.66%
Childrens Fund	29,33,164	28,99,529	1.16%
Equity Savings Fund	3,62,326	3,64,946	-0.72%
Arbitrage Fund	4,35,281	5,02,918	-13.45%
Total of Hybrid Funds	1,78,87,547	1,73,16,194	3.30%

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, with arbitrage funds and equity savings funds seeing folio contraction. This has been the standard 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 37.90% folio growth in multi-asset allocation funds can be attributed to NFOs and also to the novelty of the category; as investors look 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. Overall, for the category, number of folios grew at 3.30% in June 2023, compared to 3.65% in May 2023; 4.23% in April and 4.72% in March 2023. Clearly, the momentum is tapering.

Passive fund folios maintain the May momentum in June

Under passive category, we have included equity and debt related index products, apart from gold funds and Fund of Funds (FOF). These are largely benchmarked products. The idea is to include fund categories where the intent is not alpha hunting but to passively mirror an index or underlying asset class and just focus on managing the tracking error.

Macro picture	Total Folios Jun-23	Total Folios Jun-22	Folio Growth
Index Funds	44,95,761	27,00,762	66.46%
Fund of funds investing overseas	13,48,079	12,60,239	6.97%
Other ETFs	1,21,24,531	1,15,26,763	5.19%
GOLD ETF	47,52,363	46,05,088	3.20%
Total of Passive Funds	2,27,20,734	2,00,92,852	13.08%

Data Source: AMFI

Passive funds are the only category where all the 4 categories saw expansion in the number of folios. While momentum has tapered overall, it has improved over May 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, especially in terms of simplicity and costs. Passive fund folios grew 13.08% yoy in June 2023. That is at par with May 2023 but sharply lower than 16.34% in April and 18.43% in March 2023. 

Two trends are visible from the June 2023 folios story; and they are carried forward from the last couple of months. Debt fund folios are gathering momentum while equity and passive folios have been losing momentum in the last 2 months. That is also visible in the colour of debt and equity fund flows. Secondly, across categories, there is a preference for alpha generation, innovative ideas, unique product positioning and a past performance to boot. That is the major takeaway for fund houses as they target investors through NFOs or innovative offerings.