Mutual funds see ₹1.59 Trillion net outflows in March 2024

12 Apr 2024 , 10:10 AM

DEBT FUNDS TRIGGER OUTFLOWS IN MARCH 2024

After 2 months of active net inflows into mutual funds, the month of March 2024 saw net outflows. In January 2024, Indian mutual funds had witnessed robust mutual fund inflows of ₹1.23 Trillion, which was followed by another stellar month of ₹1.18 Trillion inflows in February 2024. March was expected to see pressure due to the year-end treasury selling, which is quite normal. For March 2024, the mutual fund outflows stood at ₹1.59 Trillion.

The debt funds saw record net outflows in the month of March 2024 at ₹1.98 Trillion, of which, the liquid funds category alone saw net outflows of ₹1.58 Trillion in the month. This led to a sharp fall in the AUM of liquid funds which fell from above ₹5 Trillion to around ₹3.63 Trillion as of the close of March 2024. However, other categories of funds like active equity funds, hybrid funds and passive funds saw net inflows in March 2024, although they could only partially offset the aggressive outflows from debt funds. As of the close of March 2024, net MF AUM stood lower at ₹53.40 Trillion; 2.1% lower on MOM basis.

NON-DEBT FUNDS CONTINUED TO SEE INFLOWS IN MARCH 2024

Despite the aggressive outflows from debt funds in March 2024 (more due to treasury reasons), other categories saw net inflows during the month. Inflows into equity funds stood 15.8% lower MOM at ₹22,633 Crore in March 2024; just a month after equity fund flows had scaled a 23-month high. On the triggers for equity fund flows, while SIPs continued to remain robust, the inflows via NFOs were quite limited during the month. Also, for the first time in more than 2 years, small cap funds saw net outflows, thanks to market pressures; after the regulator also dissuaded the AMCs from going aggressive on small cap flows.

Let us now focus on the two major trigger for active equity fund flows; viz, NFO flows and SIP flows. The flows into systematic investment plans (SIPs) continued to be robust at ₹19,271 Crore in March 2024, marginally higher than the ₹19,186 Crore recorded in February 2024. However, as is generally the case, many of the March flows may have gone into April calculations due to a slew of fiscal year-end holidays. NFOs collected a more sober ₹4,146 Crore in March 2024, of which open-ended funds accounted for ₹3,827 Crore. Within the open ended funds, thematic equity funds accounted for 80% of the flows; led by thematic NFOs from Baroda BNP Paribas, Canara Robeco, Edelweiss, Union, and Kotak.

WHO DOMINATES THE ₹1 TRILLION CLUB

We now turn to our monthly update on the Trillion Rupee Club. The Trillion rupee club is a group of fund categories with over ₹100,000 Crore in AUM. Out of the 39 categories of open-ended funds, there are 19 open ended fund categories with AUM of over ₹1 Trillion. Let us start with debt funds first. Out of the 16 active debt schemes, only 3 categories are in the Trillion rupee club. This includes liquid funds, money market funds, and corporate bond funds; with short duration funds dropping out of the list this month. While corporate bond funds remain the only long term fund, liquid funds saw a sharp fall in AUM in March.

What about active equity funds? A total of 10 out of the 11 equity funds had AUMs in excess of ₹1 Trillion with only dividend yield funds having an AUM of under ₹1 Trillion. In fact, 7 out of 10 of the equity fund categories viz., large cap funds, large & mid-cap funds, mid cap funds, small cap funds, sectoral/thematic fund, ELSS Funds, and flexi-cap funds are already in the ₹2 Trillion club; and out of them, flexi cap funds and Large Cap Funds are in the ₹3 Trillion dollar club. Active equity funds accounted for bulk of AUM accretion in March 2024.

What about the hybrid and passive funds? Out of the 8 funds in the hybrids / solutions category, there are 3 funds in the ₹1 Trillion club with Dynamic Asset Allocation Funds (BAFs) already in the ₹2 Trillion club. In the passive funds category; index funds and index ETFs are already in that category. If you look at all fund categories, across equity, debt, hybrids, and passives; it is the index ETF category, that has the highest AUM at ₹6.64 Trillion, followed by liquid funds at ₹3.64 Trillion and flexi cap funds at ₹3.50 Trillion.

DEBT FUNDS SEE RECORD OUTFLOWS OF NEARLY ₹2 TRILLION IN MAR-24

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 (₹ Crore)	Equity Fund Flows (₹ Crore)	Hybrid Fund Flows (₹ Crore)	Passive Fund Flows (₹ Crore)	Total MF Flows (₹ Crore)
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	(1,01,512)	14,091	18,650	4,720	(66,192)
Oct-23	42,634	19,957	10,250	7,746	80,529
Nov-23	(4,707)	15,536	13,723	2,234	25,616
Dec-23	(75,560)	16,997	15,229	573	(40,685)
Jan-24	76,469	21,781	20,885	3,983	1,23,205
Feb-24	63,809	26,866	18,288	9,756	1,18,351
Mar-24	(198,299)	22,633	5,791	12,793	(1,59,387)

Data Source: AMFI

Here are some quick takeaways. Debt funds were back to its quarterly outflows cycle triggered by treasury outflows. Debt funds, especially the funds with shorter tenure, tend to be volatile as corporates and institutions park surpluses in these funds and withdraw for quarterly payments of advance taxes, GST etc. That is why we see huge outflows quarterly. Net inflows were relatively robust across active equity funds and passive funds; although flows into hybrid funds were subdued in March 2024. With the sell-off in small and mid-caps in March 2024, alpha has been a lot harder to come by.

HOW OVERALL AUM MIX EVOLVED IN MARCH 2024?

After the marginal fall in overall mutual fund AUM in September 2023, March 2024 was the first month in recent memory to see such a sharp contraction in AUM. The overall AUM of Indian mutual funds stood at ₹53.40 Trillion as of March 2024, lower by 2.1% over last month. Since the start of FY24, AUM of mutual funds are still higher by 35.46%. In March 2024, equity appreciation and non-debt flows did play a positive part, but the impact of the liquid fund sell-off was just too hot to handle.

Month	Debt AUM (₹ Trillion)	Equity AUM (₹ Trillion)	Alternate AUM (₹ Trillion)	Total AUM (₹ Trillion)
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
Nov-23	13.58	20.33	14.87	49.05
Dec-23	12.91	21.79	15.78	50.78
Jan-24	13.77	22.50	16.17	52.74
Feb-24	14.50	23.12	16.62	54.54
Mar-24	12.62	23.49	17.02	53.40

Data Source AMFI

For March 2024, debt fund AUM fell to ₹12.62 Trillion compared to ₹14.50 Trillion at the close of February. This is the lowest level of debt fund AUM in the last one year. Debt fund AUM is down12.97% over February 2024. For March 2024, equity fund AUM edged up to ₹23.49 Trillion compared to ₹23.12 Trillion at the close of February; a yoy growth in AUM of 54.85%. That is not surprising with the Nifty and Sensex at lifetime highs. Alternate assets saw AUM grow by 40.78% yoy; across hybrid and passive AUM. Here are the AUM shares.

Month	Active Debt Funds	Active Equity Funds	Hybrid Funds	Passive Funds	Solution Funds	Close-ended Funds
Dec-23	25.42%	42.92%	13.03%	17.21%	0.84%	0.58%
Jan-24	26.10%	42.67%	13.09%	16.75%	0.82%	0.56%
Feb-24	26.58%	42.40%	13.02%	16.65%	0.80%	0.54%
Mar-24	23.64%	43.99%	13.53%	17.50%	0.83%	0.51%

If you take a 4 month perspective (March 2024 over December 2023), share of active equity fund AUM is up 107 bps, share of hybrid funds are up 50 bps while the share of passive funds is up 29 bps. This has been offset by active debt fund market share contracting by 178 bps over December 2023 and close-ended funds contracting by 7 bps. The trend is the same on a MOM basis, but just a lot sharper.

ACTIVE DEBT FUNDS: QUARTERLY OUTFLOWS RETURN TO HAUNT

Debt funds saw record net outflows of ₹1,98,299 Crore in March 2024, reversing the optimism of the last 2 months. There were only 3 categories of debt funds that saw net inflows in March viz; long duration funds, banking & PSU funds, and Gilt funds with 10-year duration. However, inflows in all these were too small to make any substantive difference to the overall picture. The focus was largely on outflows from debt funds.

Among the debt fund categories that saw net outflows in March 2024 were Liquid Funds at ₹1,57,970 Crore, ultra-short duration funds at ₹9,135 Crore, money market funds at ₹8,720 Crore, overnight funds at ₹6,993 Crore, short duration funds at ₹6,450 Crore, low duration funds at ₹6,157 Crore, and floater funds at ₹2,173 Crore. Other categories of debt funds also saw net outflows in March 2024, but they were relatively smaller in size.

ACTIVE EQUITY FUNDS: MARCH INFLOWS FALTER AFTER FEBRUARY BOOST

For the month of March 2024, all categories of equity funds, other than small cap funds (yes, you heard it right), saw net inflows. Total inflows into equity funds at ₹22,633 Crore in March 2024 tapered after a 23-month record in February. Sectoral / Thematic funds dominated inflows at ₹7,918 Crore; largely led by thematic NFOs. The other fund categories that saw net inflows in March 2024 include; flexi cap/ multi-cap funds ₹4,566 Crore, large & mid-cap funds ₹3,216 Crore, large cap funds ₹2,128 Crore, value / contra funds ₹1,708 Crore, and mid-cap funds ₹1,018 Crore. The marginal outflows from small cap funds were a surprise, but that could rectify once the dust over smaller stocks settles down.

HYBRID FLOWS TEPID; PASSIVE FLOWS BOUNCE BACK

The combination of hybrid funds and solution funds got net inflows of ₹5,791 Crore, sharply lower than ₹18,288 Crore in February 2024. In the hybrid category, net inflows into multi-asset allocation funds stood at ₹2,681 Crores and dynamic asset allocation funds (BAFs) stood at ₹1,733 Crore. In addition, equity savings funds also saw net inflows of ₹928 Crore. Arbitrage funds, for a change, saw net outflows syncing with the treasury outflows in March 2024. Multi asset allocation funds, BAFs and equity savings funds appear to be more of a bet on the asset allocation theme to mutual fund investing; something which seems to be appealing to a lot of investors these days.

Passive funds had a relatively strong month in March 2024 with net inflows at ₹12,793 Crore; sharply better than the average of last few months. This was driven by inflows of ₹10,560 Crore into index ETFs, and ₹1,822 Crore into index funds. Flows into gold funds and international fund of funds (FOFs) remained tepid. Passive flows had slowed in recent months due to easy alpha pickings. However, with the regulators coming down heavily on small and mid-cap funds; the action gas shifted back to the large-caps and the passive funds.

OUR READING FROM MARCH 2024 AMFI MF FLOWS REPORT

Broadly, there are 4 insights we gathered from the mutual fund flows data for March 2024. Firstly, the debt funds are still in search of a narrative to appeal to retail investors, and till then the treasury cycles will continue to drive flows. Secondly, on equity funds, there has been a slowdown in flows into mid-cap with small cap funds seeing outflows. These flows have shifted to large cap funds, thematic funds, and large & mid-cap funds. However, this trend may not really sustain, as interest in small caps is likely to come back soon. Thirdly, the markets are still not willing to bet on rate cuts as evident from weak demand for longer tenure bond funds. Fed ambiguity is not helping the cause either. Finally, at higher levels of the Nifty and Sensex, we could see reduced exposure to arbitrage funds and interest re-building in passive funds. Passive funds could still see a lot action in coming months.