Mutual fund inflows cross Rs. 80,000 crore in October 2023

13 Nov 2023 , 07:00 AM

Mutual fund flow story of October 2023

In the rough of tumble of the capital markets, the one thing that appears to be progressing smoothly is the faith that investors have continued to repose on mutual funds. It is not just about the SIPs or NFOs, but mutual funds as an asset class is taking a big leap of faith as far as retail investors are concerned. After several months of investor selling in debt funds, we saw inflows into debt funds back in October 2023. 

Of course, the equity flows and the hybrid flows have continued to remain robust, even as interest in passive funds was once again seen in the month of October 2023. However, the SIP flows for October 2023 on a gross basis crossed the Rs16,900 crore mark, a level that is substantially above the pre-COVID levels. In a sense, the COVID and the aftermath were the defining period for Indian mutual funds as a long term asset class. The volatility and the bounce post COVID showed that persisting with mutual fund investing was everything.

Focal Point – How SIPs and NFOs influenced flows in October 2023

Even as the SIP flows into mutual funds were robust in October 2023, the NFO flows were relatively tepid. Let us focus on the SIP story first. At Rs16,928 core of SIP flows in October 2023, it was once again a record month. Of course, these are gross flows and the net flows would much lower; but still the growth is something to write home about. On the other hand, it is not just the SIP flows but even the SIP folios have crossed 7.30 crore during the month of October, accounting for a chunk of the mutual fund flows. The SIP AUM is close to Rs8.60 trillion and at this pace, if the market is supportive, we should see SIP AUM of over Rs10 trillion by the end of this fiscal year. Let us turn to the NFO story in October 2023.

NFOs or new fund offerings collected Rs3,638 crore in the month of October, which would classify as a moderate month of NFO collections. What is surprising is that this spread across 14 different NFO schemes. Out of these 14 NFO schemes, 7 were passive funds while another 4 were equity funds. IN terms of fund raising, out of the Rs3,638 in terms of NFO flows in the month of October 2023, equity fund NFOs alone accounted for a bulk of Rs2,996 crore. The per capital raising of funds by NFOs is sharply down over 2021 and 2022, but that could be because the big AMCs like SBI, ICICI and HDFC are not active in the NFO fray.

Sharp debt fund flows, gives a fillip to debt fund AUM

Here is a quick look at how the monthly flows across fund categories panned out for the last 13 months. Solutions funds are merged into hybrid funds.

Month	Debt Fund  Flows (Rs crore)	Equity Fund  Flows (Rs crore)	Hybrid Fund  Flows (Rs crore)	Passive Fund  Flows (Rs crore)	Total MF Flows (Rs crore)
Oct-22	(2,818)	9,390	(2,647)	10,261	14,047
Nov-22	3,669	2,258	(6,385)	10,394	13,264
Dec-22	(21,947)	7,303	2,418	15,398	4,491
Jan-23	(10,316)	12,547	4,681	3,955	11,373
Feb-23	(13,815)	15,686	630	6,488	9,575
Mar-23	(56,884)	20,534	(12,148)	26,804	(19,264)
Apr-23	106,677	6,480	3,511	6,945	121,435
May-23	45,959	3,240	6,193	4,487	57,420
Jun-23	(14,136)	8,638	4,611	2,057	(2,022)
Jul-23	61,440	7,626	12,541	860	82,046
Aug-23	(25,873)	20,245	17,273	4,535	16,181
Sep-23	(101,512)	14,091	18,650	4,720	(66,192)
Oct-23	42,634	19,957	10,250	7,746	80,529

Data Source: AMFI

Here are some quick takeaways. Debt funds flows were negative in 3 out of the previous 4 months. However, October 2023, saw debt fund inflows of Rs42,634 crore, largely triggered by inflows into liquid funds. With no quarter end this time around, the treasury pressure was clearly missing. Also, the recent decision by the Fed to hold rates has raised hopes that RBI may start cutting rates, sooner rather than later. That has helped flows into debt funds. The year started positively for debt funds with strong inflows in April and May, but after that the sentiments have been generally negative, so October 2023 comes as a relief. Hybrid fund flows are robust, but that is more due to the predominance of arbitrage fund inflows and the rising interest in multi-asset funds. There had been a lot of short term funds shifting to arbitrage funds in search of higher returns and lower tax incidence, but that drift appears to have been arrested in the month of October 2023.. 

How overall AUM mix evolved in October 2023?

The month of October 2023 saw a marginal uptick in the overall AUM, which inched up from Rs46.58 trillion to Rs46.72 trillion over the previous month. This also marks the highest ever closing AUM for mutual funds in India. The equity AUM growth in the month of October 2023 was subdued due to a broad sell-off in the equity markets and negative returns on equity indices. However, that was offset by aggressive buying in debt funds. In fact, since the start of this fiscal year FY24, the AUM of mutual funds is up 18.5%, largely explained by the frenetic rally in equities, but supported by the surge in equity fund inflows. For October 2023, the big story was the return of positive flows into debt funds, a segment that has been under pressure for better part of this fiscal year. Here is the story of how the AUM across fund categories evolved over the last one year.

Month	Debt AUM  (Rs trillion)	Equity AUM   (Rs trillion)	Alternate AUM  (Rs trillion)	Total AUM  (Rs trillion)
Oct-22	12.45	15.22	11.58	39.50
Nov-22	12.57	15.58	11.93	40.38
Dec-22	12.42	15.25	11.92	39.89
Jan-23	12.38	15.06	11.87	39.62
Feb-23	12.30	15.02	11.83	39.46
Mar-23	11.82	15.17	12.09	39.42
Apr-23	12.99	15.85	12.47	41.62
May-23	13.49	16.57	12.85	43.20
Jun-23	13.48	17.43	13.22	44.39
Jul-23	14.17	18.25	13.69	46.38
Aug-23	14.00	18.60	13.74	46.64
Sep-23	13.05	19.08	14.17	46.58
Oct-23	13.54	18.79	14.10	46.72

Data Source AMFI

Thanks to aggressive inflows into debt funds, the debt fund AUM actually improved to Rs13.54 trillion compared to Rs13.05 trillion at the close of last month. This was offset by a fall in the AUM of equity funds and alternat funds, comprising of hybrid funds and passive funds. Across the board, it is weak equity markets that has impacted the AUM of equity and equity related funds. On the other hand, the debt funds saw sharp increase in the AUM, let by positive flows into most debt fund categories. The question is what has this AUM shift done to the market AUM share of each of the category of funds. Here are the relative shares for the last 3 months.

Month	Active Debt Funds	Active Equity Funds	Hybrid  Funds	Passive Funds	Solution Funds	Close-ended Funds
Jul-23	30.56%	39.34%	11.88%	16.84%	0.81%	0.56%
Aug-23	30.01%	39.88%	12.03%	16.62%	0.81%	0.64%
Sep-23	28.02%	40.97%	12.62%	16.97%	0.82%	0.60%
Oct-23	28.99%	40.23%	12.58%	16.80%	0.81%	0.59%

If you just look at on a MOM basis, the gains are entirely belonging to the debt funds while the active equity funds, passive funds and hybrid funds have seen relative fall in market share. However, if you take a 3 month perspective from the close of July to the close of October 2023, then equity and hybrid funds have been the clear gainers. Passive funds are flat while the share of debt funds is still lower over a 3 month period.

Active Debt funds: Liquid Funds lead inflow surge in October 2023

Debt funds saw net inflows of Rs42,634 crore in October 2023 This is only the second time in the last 5 months that debt funds have seen positive flows. The outflows were from overnight funds and low duration funds in October, with most of the other key debt funds seeing positive flows. For the month of October 2023, let us first look at the categories that sold off. Overnight funds saw net outflows of Rs3,444 crore, while low duration funds saw net outflows of Rs1,142 crore for the month of October 2023. Other outflows were relatively small in comparison.

Among the debt fund categories that saw net inflows in October 2023 Liquid Funds saw inflows of Rs32,964 crore, money market funds Rs6,249 crore, ultra short duration funds Rs2,359  crore, Gilt funds Rs2,000 crore, corporate bond funds Rs1,940 crore and short duration funds Rs1,281 crore. The strong inflows into gilt funds and corporate bond funds is affirmation of the fact that investors are now starting to bet on interest rates easing.

Active Equity Funds: net inflows pick up in October 2023

For the month of October 2023, all the categories of equity funds saw positive flows. In the last few months, we have seen consistent net selling in large cap funds and in ELSS. The reason. The reasons were quite obvious. Large cap funds were struggling to beat the indices and investors preferred the lower cost alternative of index funds over large cap funds. In terms of ELSS, it does not have much relevance if an increasing number of people shift to the new tax regime, which does away with most exemptions. Overall, equity funds saw net inflows of Rs19,957 crore in October 2023, with all categories of equity funds seeing positive flows in the month.

Let us turn to the equity fund categories that saw maximum net inflows. Flexi/Multi Cap funds saw inflows of Rs5,079 crore, small cap funds saw inflows of Rs4,495 crore, sectoral / thematic funds Rs3,896 crore, mid-cap funds Rs2,409 crore, large & mid-cap funds Rs1,734 crore and Large Cap funds Rs724 crore.  The story is almost the same as last time, except that large cap funds and ELSS funds are now seeing net inflows in October 2023. Thematic funds continue to be driven by NFOs while the alpha preference for small caps and mid-caps continues to be robust. The demand for multi-cap funds can be seen as an extension of demand for smaller stocks that can generate alpha in the portfolio. 

Hybrid flows are the big story of September 2023

Overall, the combination of hybrid funds and solution funds got net inflows of Rs10,250 crore. However, the macro picture glosses over the fact that the 2 fund categories dominated total flows in October 2023 and accounted for 80% of the net flows into this category. We are talking about arbitrage funds with net inflows of Rs5,523 crores and multi-asset allocation funds with net inflows of Rs2,410 crore. However, even equity savings funds saw inflows of Rs848 crore while BAFs and aggressive hybrids also saw net inflows. All the hybrid categories were positive, but the momentum in October looks to favour equity funds.

Passive funds had a relatively better month in October 2023 with net inflows of Rs7,746 crore; sharply higher than last month. This was driven by inflows of Rs4,769 crore into index ETFs, Rs2,089 into index funds and Rs841 crore into gold funds. Fund of Funds (FOFs) saw very marginal inflows in the month of October 2023.

Two takeaways from the October 2023 MF story

How do we sum up the mutual fund flow story for October 2023? There are 2 key takeaways. Firstly, debt funds have made a sharp comeback in the month as liquid funds saw huge inflows. More importantly, the demand for gilt funds and corporate bond funds hints at a dovish view. Secondly, if you summarize the story of mutual fund flows, the three-letter word that stands out is “SIP”. That has made all the difference, not only to flows, but also to the sustainability of flows in challenging economic conditions.