Sep-24 sees MF net outflows on quarter end; as MF folios cross 21 Crore

11 Oct 2024 , 02:50 PM

QUARTER-END EFFECT TRIGGERS DEBT FUND SELLING IN SEPTEMBER 2024

The net outflows from debt funds in September 2024 was largely along expected lines as that is when corporates pull money out of liquid funds to pay advance taxes. The good news is that, this time around, the debt fund net flows were positive in July and August, which means it is purely the quarterly effect, and not so much an investor aversion for debt that is causing the outflows. However, debt was just one side of the story. The inflows into equity funds continued to remain robust at ₹34,419 Crore. Of course, it was once again, the sectoral and thematic funds that led the flows into equity funds, but there was substantial contribution from other categories of equity funds also. However, the flows into hybrid funds and passive funds were relatively subdued in the month of September 2024.

To begin with, one cannot take the debt fund outflows as indicative of anything fundamental. That is because, the month marked the end of the September quarter and also the half year of FY25, when the pressure of advance tax payments for corporates is quite high. Most corporates park their temporary surpluses in liquid funds and when the quarter date comes up, they redeem these liquid funds and money market funds to make advance tax payments. As we have seen in the previous quarter, debt funds have attracted genuine flows in months other than the quarter ends. Equity fund flows may have been volatile but this is the fifth month in a row when the equity fund net inflows have been in excess of ₹34,000 Crore. That can be largely attributed to two factors. Firstly, SIPs have been gradually building heft and most of them gravitate towards equity funds. Secondly, the NFO market is turning robust with equity funds taking most of the inflows in recent months.

HOW SIPS AND NFOS SHAPED UP IN SEPTEMBER 2024

Over the last few months, the SIP flows and the NFO flows have been the major swing factors for equity fund inflows. That is true of September 2024 too. In fact, for the month of September 2024, the gross SIP flows were at a record level of ₹24,509 Crore, which is 4.08% higher than the SIP flows in August 2024. In FY25, SIP flows have been well above ₹20,000 Crore in all the six months; averaging ₹22,321 Crore; which is about 34.5% higher than the average monthly flows in the previous year. In a sense, the SIP flows are reflective of the financialization of savings and the financial planning approach that investors are increasingly adopting with respect to managing their monies. Let us now turn our attention to the other big swing factor; the new fund offerings (NFOs).

For September 2024, mutual funds saw NFO flows ₹14,575 Crore across 27 NFOs as compared to ₹13,815 Crore across 18 NFOs in August 2024; and ₹16,565 Crore across 15 NFOs in July 2024. Out of these 27 NFOs in September 2024, 4 NFOs from sectoral / thematic funds, 13 NFOs from index funds, and 1 NFO each from dividend yield funds and large & mid cap funds accounted for bulk of the NFO collections in the month. The thematic funds alone accounted for accounted for 53.8% of the total NFO flows in the month of September 2024. That is reflected in the monthly net inflows into equity funds; which has again been dominated by sectoral / thematic funds. The other NFOs in the month pertained to multi-cap funds, multi-asset allocation funds, arbitrage funda and index ETFs.

WHO DOMINATES THE ₹1 TRILLION CLUB

We now turn to our monthly update on the Trillion Rupee Club; with a look at entries and exits. The Trillion rupee club includes fund categories with over ₹1,00,000 Crore (or ₹1 Trillion) in AUM. Out of the 39 categories of open-ended funds, there are 21 open ended fund categories with AUM of over ₹1 Trillion; the same as last month. Out of the 16 active debt schemes, 6 categories are in the Trillion rupee club. This includes liquid funds, ultra-short duration funds, low duration funds, money market funds, corporate bond funds, and short duration funds. Corporate bond funds is the only long term category in this club. Apart from liquid funds, which leads with net AUM of ₹4.40 Trillion, only money market funds has crossed the ₹2 Trillion mark in AUM.

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. Out of these 10 funds, 2 categories of equity funds (Flexi-Cap Funds and Sectoral / Thematic Funds) have AUMs of over ₹4 Trillion. There are 3 categories of equity funds (large cap funds, mid-cap funds, small cap funds) having AUM between ₹3 Trillion to ₹4 Trillion. In the next tier; the Large & Mid-Cap funds and ELSS Funds have AUM between ₹2 Trillion to ₹3 Trillion. Multi-cap funds, value funds and focused funds had AUM between ₹1 Trillion and ₹2 Trillion. Sectoral / Thematic funds are the largest category with September 2024 end AUM of ₹4.67 Trillion, followed closely by Flexi-Cap funds with net AUM of ₹4.24 Trillion. Mid cap funds looks the next category to foray above the ₹4 Trillion mark.

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 Aggressive Hybrid Funds and Dynamic Asset Allocation Funds (BAFs) already in the ₹2 Trillion club while Arbitrage Funds with an AUM of ₹1.89 Trillion is almost getting there. BAFs rule the AUM rankings, largely due to a predominance of NFOs in the category in the last 3 years. Finally, what about the passive funds category? Among passive funds AUM as of end September 2024; index funds and index ETFs are already in the Trillion AUM Club. If you look at all fund categories, across equity, debt, hybrids, and passives; index ETFs have the highest AUM at ₹8.10 Trillion. This is a mix of equity and bond index ETFs. Index ETFs AUM is largely dominated by domestic index ETFs on Nifty, Sensex, and other generic indices.

MF FLOWS FACE QUARTER END PRESSURE IN SEPTEMBER 2024

Here is a quick look at how the monthly flows across fund categories panned out for the last 13 months. Solutions funds have been 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)
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	(1,98,299)	22,633	5,791	12,793	(1,59,387)
Apr-24	1,89,891	18,917	20,110	11,505	2,39,233
May-24	42,295	34,697	18,456	15,665	1,11,103
Jun-24	(1,07,358)	40,608	9,039	14,602	(43,109)
Jul-24	1,19,588	37,113	17,663	14,778	1,89,141
Aug-24	45,169	38,239	10,233	14,599	1,08,123
Sep-24	(1,13,834)	34,419	5,366	3,254	(71,114)

Data Source: AMFI (negative figures in brackets)

Here are some quick takeaways. Debt funds saw net outflows of ₹(1,13,834) Crore in September 2024. That was more due to quarter end liquidity adjustments. Equity fund inflows were robust at ₹34,419 Crore in September 2024, still well short of the record net flows levels seen in June 2024. In the last one year, and specifically since the last of the current financial year FY25, the equity flows have stayed robust at an elevated levels and almost divorced from the market volatility levels. Within the equity category, the focus is largely on the thematic / sectoral funds, which is more due to the NFO concentration. The Hybrid funds and the passive funds saw a relatively tempering of net inflows in the month of September 2024.

HOW THE ₹67.09 TRILLION NET AUM ADDS UP?

As of the close of September 2024, Indian mutual funds reported record AUM of ₹67.09 Trillion or $799 Billion. Here is a quick dekko at the AUM mix.

Month	Debt AUM (₹ Trillion)	Equity AUM (₹ Trillion)	Alternate AUM (₹ Trillion)	Total AUM (₹ Trillion)
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
Apr-24	14.59	24.74	17.66	57.26
May-24	15.12	25.40	18.13	58.91
Jun-24	14.13	27.68	19.08	61.16
Jul-24	15.44	29.34	19.92	64.97
Aug-24	16.00	30.09	20.35	66.70
Sep-24	14.97	31.10	20.75	67.09

Data Source AMFI

For September 2024, active debt fund AUM fell sharply to ₹14.97 Trillion compared to ₹16.00 Trillion at the close of August 2024. This can be largely attributed to the debt fund redemptions by corporates to meet advance tax payouts. Debt fund AUM is down -6.44% over August 2024 and on a yoy basis up 14.71%. In September 2024, active equity fund AUM edged up to record levels of ₹31.10 Trillion; showing sequential growth of 3.36% and yoy growth in AUM of 63.00%. That is not surprising with the Nifty and Sensex near lifetime highs. Alternate assets saw AUM grow by 1.97% sequentially and 46.44% yoy. Let us now turn to check out the AUM shares for the last 6 months

Month	Active Debt Funds	Active Equity Funds	Hybrid Funds	Passive Funds	Solution Funds	Close-ended Funds
Apr-24	25.48%	43.21%	13.23%	16.81%	0.80%	0.46%
May-24	25.67%	43.11%	13.28%	16.70%	0.80%	0.44%
Jun-24	23.11%	45.26%	13.24%	17.14%	0.82%	0.43%
Jul-24	23.77%	45.16%	13.00%	16.86%	0.80%	0.41%
Aug-24	23.98%	45.11%	13.70%	16.80%	0.80%	0.40%
Sep-24	22.32%	46.36%	13.04%	17.08%	0.80%	0.40%

If you take a 5-month perspective (September 2024 over April 2024), share of active equity fund AUM is up 315 bps and AUM share of passive funds is also up 27 bps in this period. However, over this 5-month period; debt fund AUM share is down -316 bps while the share of hybrid funds is down 19 bps. The respective share of solution funds is flat while that of closed-ended funds has fallen by 6 bps to just 0.40% of the overall AUM.

ACTIVE DEBT FUNDS: QUARTER END REDEMPTIONS TAKES ITS TOLL

Debt funds saw net outflows of ₹(1,13,834) Crore in September 2024, as quarterly outflows for advance tax payments took its toll. That was along expected lines. There were positive inflows in some select debt funds. These included Corporate Bond Funds ₹5,039 Crore, Gilt Funds ₹2,317 Crore, Long Duration Funds ₹1,489 Crore, Short Duration Funds ₹1,435 Crore, and Low Duration Funds ₹679 Crore. That is a rather impressive list of net inflows in a typical quarter end month for debt fund category.

Let us now move to the debt fund categories that saw net outflows. For the month of September 2024 major net outflows were visible in Liquid Funds at ₹(72,666) Crore, Overnight Funds at ₹(19,363) Crore, Money Market Funds at ₹(23,421) Crore, Ultra Short Duration Funds at ₹(6,282) Crore, Banking & PSU Funds at ₹(1,978) Crore, and floater funds ₹(1,216) Crore. There were a few other funds also with positive inflows in the debt funds category, but they were not too material. It was treasury funds that again dominated the outflows, which is not surprising, considering it was quarter end.

ACTIVE EQUITY FUNDS: ROBUST INFLOWS, EVENLY DISTRIBUTED

For the month of September 2024, equity funds saw robust net inflows of ₹34,419 Crore. In the last 5 months since May 2024, the equity fund flows have averaged ₹37,015 Crore. Once again, Sectoral / Thematic funds dominated inflows at ₹13,255 Crore; largely led by the thematic NFOs accounting for over half of all NFO flows in September 2024. The other fund categories that saw strong net inflows in September 2024 include; flexi cap/ multi-cap funds ₹6,723 Crore, Large & Mid Cap funds ₹3,598 Crore, mid-cap Funds ₹3,130 Crore, small cap funds ₹3,071 Crore, Value / Contra funds ₹1,964 Crore, and Large Cap funds ₹1,769 Crore. ELSS funds and Focused funds continued to see negative flows in September 2024. With the tax breaks gone in the New tax regime (NTR), ELSS looks to have lost its charm for investors.

HYBRID FLOWS AND PASSIVE FLOWS TAPER IN SEPTEMBER 2024

The combination of hybrid funds and solution funds got net inflows of ₹5,134 Crore, sharply lower than in July and August 2024. In the hybrid category, net inflows into Multi-Asset Allocation Funds (MAAF) dominated at ₹4,070 Crore, thanks to the Union Multi-Asset Allocation Fund NFO raising ₹824 Crore. What about other categories? Equity savings funds saw net inflows of ₹2,269 Crore, Dynamic Asset Allocation Funds (BAFs) ₹1,704 Crore, and Aggressive Hybrid Funds ₹516 Crore. The overall hybrid category took a hit on account of their star category of arbitrage funds seeing net outflows of ₹(3,532) Crore.

Passive funds had a relatively tepid month in September 2024 with net inflows sharply lower at ₹3,254 Crore. This was driven by inflows of ₹1,960 Crore into Index Funds, ₹1,233 Crore into index ETFs. Gold fund saw marginal inflows and international FOFs saw marginal outflows in the month of September, but they were not large enough to make any genuine impact on the overall category flows.

WHAT WE READ FROM THE AMFI DATA IN SEPTEMBER 2024

There were 3 quick takeaways from the mutual fund flows data for September 2024. Firstly, equity funds continue to see flow interest; although it is largely dominated by the sectoral and thematic funds. Such funds have the habit of deluging the market around peak levels, so that is something to be cautious about. Secondly, SIP flows have been steadily growing for over a year now and shows the coming of age of the Indian mutual fund investor. Finally, folios crossed 21 Crore in the month and it is now estimated that unique investors are also above 5 Crore. That is perhaps the launch pad for a big leap. We must ensure it happens!