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

11 Jun 2023 , 09:27 AM

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 the best 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 a period of 1 year or a few years, it gives you a very clear picture of how the folios have growth and which categories have dominated the retail mindshare. Here is a quick comparison of year-on-year mutual fund folio growth for various categories of mutual funds; between May 2022 and May 2023. 

MF Folios: Macro picture for May 2023

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

Macro picture	Total Folios May-23	Total Folios May-22	Folio Growth
Open ended Funds	14,69,03,892	13,28,43,589	10.58%
Closed Ended and Interval Funds	4,71,610	5,05,125	-6.63%
Grand Total	14,73,75,502	13,33,48,714	10.52%

Data Source: AMFI 

At a macro level, the total number of mutual fund folios as of May 2023 stood at 14.74 crore against 14.64 crore folios one-month ago. On a yoy basis over May 2022, total folios are up 10.52% overall. However, the growth has predominantly come from open-ended schemes with folio growth of 10.58%, while close-ended fund folios saw contraction in folios by -6.63%. That is not surprising considering that close-ended folios account for just about 0.32% of the total folios in India.

Debt fund folios shrink in May 2023, but the fall is moderating

Debt fund folios continued to be under pressure in May 2023 and the yoy comparison clearly shows that the number of folios has fallen over May 2022 by -1.3%.

Macro picture	Total Folios May-23	Total Folios May-22	Folio Growth
Long Duration Fund	47,319	24,068	96.61%
Overnight Fund	6,73,564	5,85,062	15.13%
Ultra Short Duration Fund	6,35,328	6,15,426	3.23%
Money Market Fund	4,27,143	4,14,354	3.09%
Dynamic Bond Fund	2,32,928	2,26,595	2.79%
Gilt Fund	1,79,210	1,74,343	2.79%
Liquid Fund	17,75,895	17,46,868	1.66%
Gilt Fund with 10 year constant duration	42,253	43,242	-2.29%
Corporate Bond Fund	6,11,354	6,45,312	-5.26%
Medium to Long Duration Fund	1,06,803	1,13,683	-6.05%
Medium Duration Fund	2,55,984	2,72,693	-6.13%
Banking and PSU Fund	2,92,621	3,20,548	-8.71%
Floater Fund	2,33,630	2,56,330	-8.86%
Low Duration Fund	9,33,719	10,27,226	-9.10%
Credit Risk Fund	2,41,153	2,66,016	-9.35%
Short Duration Fund	5,03,633	5,55,760	-9.38%
Total of Debt Funds	71,92,537	72,87,526	-1.30%

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. However, this spread is better than in April. Long duration fund folios grew by a surprising 96.61%, but the base is too small. However, it does show that investors are willing to lock themselves into longer durations at higher yields, especially with the RBI hinting at topping of rates. 

The RBI decision to hold rates must have just ratified that view. Overnight funds also attracted a lot of treasury interest with 15.13% growth in folios. The categories that saw the maximum shrinkage of folios were the discretionary debt fund categories like short duration funds, low duration funds credit risk funds and floater funds; apart from the banking & PSU funds. Debt fund folios in May 2023 shrank by just -1.30%; much better than -2.26% in April 2023 and -3.07% in March 2023.

Equity fund folios robust, but growth moderated in May 2023

In contrast to debt funds, there was no ambivalence in the growth of equity fund folios; which saw macro level expansion of 12.34% in May 2023, compared to 13.23% in April.

Macro picture	Total Folios May-23	Total Folios May-22	Folio Growth
Small Cap Fund	1,15,81,947	83,30,982	39.02%
Dividend Yield Fund	7,41,636	5,79,754	27.92%
Multi Cap Fund	42,12,703	33,08,382	27.33%
Mid Cap Fund	1,08,20,927	90,14,944	20.03%
Value Fund/Contra Fund	47,93,275	41,14,712	16.49%
Large & Mid Cap Fund	79,10,456	69,79,727	13.33%
ELSS	1,52,82,099	1,41,12,957	8.28%
Sectoral/Thematic Funds	1,32,09,299	1,23,03,099	7.37%
Flexi Cap Fund	1,27,31,864	1,19,57,355	6.48%
Large Cap Fund	1,29,34,624	1,26,60,337	2.17%
Focused Fund	52,58,096	51,86,385	1.38%
Total of Equity Funds	9,94,76,926	8,85,48,634	12.34%

Data Source: AMFI

All the 11 categories of equity funds as per AMFI classification saw accretion in folios, which is like a 100% strike rate. Small cap funds again topped the folios growth at 39.02%, largely on account of NFOs, but more due to alpha hunting. Oher growth stories in terms of equity fund folios were dividend yield funds at 27.92%, multi-cap funds at 27.33% (largely on SBI NFO effect) and mid-cap funds at 20.03%. 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 May 2023 was robust at 12.34%; but progressively lower than April and March 2023.

Hybrid fund folios story also grows at a slower pace

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 treasury redemptions.

Macro picture	Total Folios May-23	Total Folios May-22	Folio Growth
Multi Asset Allocation Fund	11,00,383	8,16,589	34.75%
Aggressive Hybrid Fund	52,93,071	51,16,432	3.45%
Retirement Fund	27,68,033	26,92,309	2.81%
Balanced Advantage Fund (BAF)	44,34,950	43,20,518	2.65%
Conservative Hybrid Fund	5,17,334	5,08,531	1.73%
Childrens Fund	29,31,011	28,97,684	1.15%
Equity Savings Fund	3,60,308	3,61,971	-0.46%
Arbitrage Fund	4,40,134	5,02,163	-12.35%
Total of Hybrid Funds	1,78,45,224	1,72,16,197	3.65%

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 story in the last 2 months. Over the last few months, the big star in terms of folios growth has been multi-asset allocation funds; despite the base having grown now. The 34.75% folio growth in multi-asset allocation funds can be attributed to NFOs and also to the novelty of the category; as investors are looking at auto-hedging across asset classes. All other categories saw single-digit growth in folios. The number of folios in arbitrage funds contracted -12.35% amidst volatile markets. Overall, for the category, number of folios grew 3.65% in May 2023; lower than 4.23% in April and 4.72% in March 2023.

Passive funds perform an encore in May 2023

Under passive category, we have included equity and debt related index products, apart from gold funds and Fund of Funds (FOF). 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 only focus on actively managing the tracking error.

Macro picture	Total Folios May-23	Total Folios May-22	Folio Growth
Index Funds	42,54,905	26,39,016	61.23%
Other ETFs	1,20,83,023	1,13,88,264	6.10%
Fund of funds investing overseas	13,22,852	12,57,625	5.19%
GOLD ETF	47,28,425	45,06,327	4.93%
Total of Passive Funds	2,23,89,205	1,97,91,232	13.13%

Data Source: AMFI

Like in the case of equity funds, all the 4 categories of passive funds available in India, saw expansion in the number of folios; although the momentum has been clearly tapering in the last 3 months. Passive fund folios gained from targeted NFOs during the year. Index funds, index ETFs and gold funds have seen a sharp spike in the number folios, as investors discover the merits of passive investing with the concomitant cost benefits. Passive fund folios grew 13.13% yoy in May 2023, sharply lower than 16.34% in April and 18.43% in March 2023. 

Two trends are visible from the May 2023 folios story; and they are carried forward from April. Debt fund folios are gathering momentum while equity and passive folios have been losing momentum in the last 2 months. Secondly, across categories, there is a preference for alpha generation, innovative ideas, unique product positioning and a past performance to boot. That is the message for fund houses looking to boost their folios.