Mutual fund folios cross 20 Crore mark in August 2024

11 Sep 2024 , 03:09 PM

Teaser	The 32.6% yoy growth in mutual fund folios in August 2024 shows that retail spread of MFs is genuinely happening
Tag Words	#MutualFunds #AUM #PassiveFund #IndexFunds #IndexETF #GoldETF #SIlverETF

MUTUAL FUND FOLIOS CROSS 20 CRORE THRESHOLD

As of the close of July 2024, AMFI had reported total mutual fund folios at a healthy 19.84 Crore. In August, the number of folios decisively crossed the 20 Crore mark and closed August 2024 at 20.45 Crore folios. Before we go to what these folio numbers mean, let us first understand what folios are not. Folios are not unique investors. The total number of unique investors (mapped on unique PAN) is about 4.8 Crore in India, which is less than a fourth of the number of folios. Folios are unique mutual fund investor accounts. While AUM makes for great optics, it does not capture retail spread since AUM can be biased by a few big investors or even by a sharp appreciation in prices. From that perspective, folios are more reliable. They represent unique investors accounts with an AMC. For instance, if an investor has mutual fund holdings across 5 AMCs, then they would have 5 folios at the bare minimum. In case of multiple folios in the same AMC, you can consolidate the same.

While we celebrate the fact that in August 2024, the mutual fund AUM crossed the ₹66 Trillion mark, it is also important to note that the total unique investor folios stand at 20.45 Crore. The folios tend to be concentrated in active equity funds, and to a lesser extent, hybrid fund and passive funds. The number of folios in debt funds are much smaller as the client base is largely institutional. What is really interesting is the way folios have grown in the last decade. For instance, mutual funds started in full force only from 1993 when private funds were permitted. Between 1993 and 2014, these 21 years saw the total number of folios growing to 3.95 Crore. Just in the last 10 years, the number of folios have grown more than 5-fold to 20.45 Crore. This is not just a signal that NFOs and SIPs are contributing to folios in a big way, but also a sign that financialization of savings is happening substantially.

MF FOLIOS: MACRO PICTURE FOR AUGUST 2024

How does the macro picture of mutual fund folio growth look like in August 2024; across open-ended and close-ended funds?

Macro picture	Total Folios Aug-24	Total Folios Aug-23	Folio Growth
Open ended Funds	20,39,78,705	15,36,09,751	32.79%
Closed Ended and Interval Funds	5,42,934	6,31,826	-14.07%
Grand Total	20,45,21,639	15,42,41,577	32.60%

Data Source: AMFI

At a macro level, the total number of mutual fund folios as of August 2024 stood at 20.45 Crore; compared to 19.84 Crore folios in July 2024, 19.10 Crore folios in June 2024, 18.60 Crore folios in May 2024, 18.15 Crore folios in April, and 17.79 Crore folios  in March 2024. Each month, the folios have steadily and progressively built momentum, which is a good sign that retail intensity is growing in terms of mutual fund participation. On a yoy basis, total folios as of August 2024 are up 32.60%; compared to 31.03% in July 2024, 28.11% in June 2024, 26.19% in May 2024, 23.94% in April, and 22.04% in March 2024. The traction on folios is progressively improving on a yoy basis.

However, if the open ended folios have expanded in the month of August 2024, compared to August 2023; the folios of closed ended funds has contracted. This can be attributed to the falling appetite for fixed term plans (FTPs) in the light of the unfavourable tax treatment of pure debt funds. However, closed ended folios have become insignificant in the larger scheme of things. Today, if you look at the macro picture, the close-ended folios are just about 0.27% of total mutual fund folios.

ACTIVE DEBT FUND FOLIOS UNDER PRESSURE IN AUGUST 2024

Debt fund folios had been under pressure for the last few years. Debt returns have been not too remunerative and there is no clarity on the trajectory of interest rates. Also, debt fund flows tend to be cyclical and relatively vulnerable to quarterly tax payouts of corporates; which normally leads to volatility every quarter. Also, debt funds don’t rely too much on folios but more on revenue per customer, since the flows are institutional in nature. Of late, investors have been gravitating towards the shorter end of the yield curve, avoid the longer end. For August 2024, active debt fund folios contracted -3.48%; compared to -3.33% in July 2024, -2.69% in June 2024, -1.40% in May 2024, and -0.83% in April 2024. Interestingly, the fall is getting sharper with each passing month.

Active Debt Funds	Total Folios Aug-24	Total Folios Aug-23	Folio Growth
Long Duration Fund	72,740	47,453	53.29%
Overnight Fund	8,63,086	7,62,912	13.13%
Gilt Fund	1,96,737	1,81,526	8.38%
Liquid Fund	17,90,910	17,97,419	-0.36%
Money Market Fund	4,31,512	4,34,688	-0.73%
Ultra Short Duration Fund	6,40,477	6,45,997	-0.85%
Dynamic Bond Fund	2,17,669	2,30,149	-5.42%
Medium to Long Duration Fund	98,521	1,05,893	-6.96%
Low Duration Fund	8,39,083	9,29,069	-9.69%
Floater Fund	2,04,910	2,29,032	-10.53%
Short Duration Fund	4,39,164	4,94,329	-11.16%
Corporate Bond Fund	5,36,081	6,06,872	-11.66%
Gilt Fund (10-Y constant duration)	36,166	41,330	-12.49%
Banking and PSU Fund	2,42,657	2,81,393	-13.77%
Medium Duration Fund	2,15,558	2,50,419	-13.92%
Credit Risk Fund	1,91,020	2,30,733	-17.21%
Sub Total – Active Debt Funds	70,16,291	72,69,214	-3.48%

Data Source: AMFI

What are the key takeaways from a yoy comparison of debt fund folios as of August 2024? Out of the 16 categories of debt funds as per AMFI classification, only 3 categories showed positive growth in folios. Even out of these 3 categories, only 2 categories had double-digit growth in folios, while gilt funds grew at just about 8.38% yoy. The ratio of contracting folios to expanding folios stands at 13:3, the same as the previous month. The leader in terms of folio growth was Long Duration Funds, at 53.29% yoy, albeit on a relatively smaller base. Overnight funds also grew folios at 13.13%, on a bigger base. Gilt funds was the only other debt fund category to display positive folios growth in August 2024.

Contraction in folios was pronounced across credit risk funds at -17.21%, medium duration funds 13.92%, banking & PSU funds at -13.77%, and gilt funds with 10-year constant duration contracting folios by -12.49%. There were three more fund that saw double-digit contraction; corporate bond funds (-11.66%), short duration funds (-11.16%), and floater funds (-10.53%). Investors have shown an aversion for funds with an element of allocation discretion; especially after the Templeton mutual fund fiasco of 2020. A key factor will be whether Fed cuts rates aggressively, and how the RBI will react? Lower rates may be the key to reviving the interest in long-dated debt funds.

ACTIVE EQUITY FUNDS ADDED 3.81 CRORE FOLIOS YOY

While debt fund folio contraction showed ambivalence in flows, the vote was clearly retail positive in equity funds. In August 2024, active equity funds added 3.81 Crore folios compared to August 2023. For active equity funds, the yoy folio expansion for August 2024 stood at 36.35%; compared to 35.01% in July 2024, 31.88% in June 2024, 29.63% in May 2024, 27.13% in April, and 24.96% in March. These folio additions are an outcome of an amalgam of record SIP flows and robust NFOs across select equity fund categories.

Active Equity Funds	Total Folios Aug-24	Total Folios Aug-23	Folio Growth
Sectoral/Thematic Funds	2,63,68,314	1,39,26,575	89.34%
Multi Cap Fund	76,63,105	46,66,295	64.22%
Small Cap Fund	2,15,73,827	1,38,46,150	55.81%
Mid Cap Fund	1,67,02,539	1,16,25,895	43.67%
Value Fund/Contra Fund	72,65,493	51,83,298	40.17%
Dividend Yield Fund	10,27,942	7,75,683	32.52%
Large & Mid Cap Fund	1,03,16,175	81,92,387	25.92%
Flexi Cap Fund	1,56,85,939	1,30,00,422	20.66%
Large Cap Fund	1,46,41,638	1,30,04,992	12.58%
ELSS	1,65,49,630	1,53,81,023	7.60%
Focused Fund	50,80,648	51,81,471	-1.95%
Sub Total – Active Equity Funds	14,28,75,250	10,47,84,191	36.35%

Data Source: AMFI

In August 2024, a total of 10 out of the 11 categories of equity funds saw accretion in folios. That is a strike rate of 91%; a figure that has been constant for the last 7 months. The only equity fund category to see contraction in folios in August 2024 was focused funds, with folios shrinking by -1.95%. If you look at the big folio growth story, it was once again dominated by sectoral / thematic funds; which is not surprising with a slew of sectoral and thematic NFOs in recent months. In terms of folio growth, the sectoral / thematic funds were followed by multi-cap funds, small cap funds, mid-cap funds, and Contra Funds in that order. The top 5 folio gainers have been the same as last month. The good news is that; despite the regulatory strictures, retail investors have not lost their appetite for small cap and mid-cap funds.

The big growth stories in terms of equity fund folios were sectoral / thematic funds at 89.34%, multi-cap funds at 64.22%, small cap funds at 55.81%, Mid-Cap funds at 43.67%, and value / contra funds at 40.17%. The improved ranking of thematic funds started in May with the NFO of HDFC Manufacturing Fund, and has continued since. This can be attributed to a specific regulatory anomaly. An AMC can have only one fund per category like large caps, mid-caps, small caps etc. However, index funds and thematic funds do not have such restrictions as long as the granular product is differentiated. That explains why most of the NFOs are gravitating towards index and sectoral / thematic funds. Multi-cap growth dominating flexi-cap growth shows investors prefer a  rule-based approach to combination investing; rather than 100% discretion to the fund manager.

HYBRID FUNDS ENCORE – SUSTAINS 100% GROWTH STRIKE RATE

We have combined hybrid funds and solution-based funds due to their similar profile. Folios have grown across hybrid categories with 100% strike rate of positive folio growth. While multi-asset allocation funds lead the show, other allocation funds are also seeing traction.

Hybrid / Solution Funds	Total Folios Aug-24	Total Folios Aug-23	Folio Growth
Multi Asset Allocation Fund	24,94,704	12,19,116	104.63%
Arbitrage Fund	5,41,196	4,42,592	22.28%
Equity Savings Fund	4,39,021	3,71,658	18.12%
Dynamic Asset Allocation/BAF	48,71,024	43,20,241	12.75%
Retirement Fund	29,47,052	27,91,050	5.59%
Aggressive Hybrid Fund	55,54,971	53,16,778	4.48%
Conservative Hybrid Fund	5,47,626	5,28,375	3.64%
Children’s Fund	30,08,909	29,40,947	2.31%
Sub Total – Hybrid Funds	2,04,04,503	1,79,30,757	13.80%

Data Source: AMFI

All the 8 categories of hybrid funds plus solution funds saw folio expansion in August 2024; with 4 out of these 8 reporting double-digit growth in folios. The best folio growth was seen, once again, in multi asset allocation funds at 104.63% yoy despite a fairly large base. Arbitrage funds are emerging as an option to liquid funds in HNI portfolios and these saw folios growth of 22.28% yoy. The other allocation segment of equity savings funds also saw investor folios growing by 18.12% yoy. Investors are seriously looking at hybrids like multiple asset allocation funds, BAFs and equity savings funds for allocation across multiple asset classes. However, hybrid funds are not just about asset allocation but also about taxation; since multi-asset allocation funds, BAFs and equity savings funds structure themselves as equity funds by holding over 65% in equities. This enhances post-tax returns for investors.

Other than the multi asset allocation funds, equity savings funds, arbitrage funds, and Balanced Advantage Funds (BAFs); all the other categories of hybrids showed single digit growth. While BAFs grew folios 12.75% yoy in August 2024; the others grew in single digits only. For the hybrid category funds, number of folios grew by 13.80% in August 2024; compared to 12.22% in July 2024, 11.53% in June 2024, 10.58% in May 2024, and 9.54% in April. The yoy growth in hybrid fund folios has been progressively getting better each month and that is the big positive takeaway from the hybrid fund folio data.

PASSIVE FUNDS STILL LEAD ON YOY FOLIO GROWTH

Passive funds added 1.01 Crore folios yoy. Passive category includes equity and debt related index products (index funds and ETFs), apart from gold funds, gold ETFs, silver ETFs, and the international Fund of Funds (FOF).

Passive Funds	Total Folios Aug-24	Total Folios Aug-23	Folio Growth
Index Funds	1,03,43,195	51,13,123	102.29%
Other ETFs	1,62,72,528	1,23,34,415	31.93%
GOLD ETF	56,60,198	47,95,268	18.04%
Fund of funds investing overseas	14,06,740	13,82,783	1.73%
Sub Total – Passive Funds	3,36,82,661	2,36,25,589	42.57%

Data Source: AMFI

Other than hybrid funds, even passive funds saw expansion in folios across all categories, although the yoy folio growth of passive funds is even better than that of active equity funds. The growth in passive fund folios yoy is the highest among all categories at 42.57%. The Index funds dominated folio growth at 102.29%, followed by index ETFs at 31.93%, and gold ETFs at 18.04% in August 2024. Passive fund folio growth in August 2024 improved further to 42.57%; compared to 38.86% in July 2024, 34.24% in June 2024, 32.40% in May 2024, 29.56% in April, and 27.57% in March 2024. Once again, folios growth is getting progressively better and that is what really matters in terms of long term sustainable growth of passive funds. As markets get more volatile, the interest in passive stories is seeing a revival. Investors seem to be following the sagely advice of Jack Bogle, “Why look for a needle in a haystack, when  you can buy the entire haystack.”

What are the takeaways from folio growth story in August 2024? Clearly, the financialization of savings is the big trend, but the trend for passives are back in a big way and they are getting the better of active equity funds. Of course, the debt fund folios continue to contract, but that could change if the Fed and the RBI turn dovish. For that, we have to keep our fingers crossed!