Trends in Indian mutual funds for February 2023

17 Mar 2023 , 10:33 AM

These trends are not only in terms of the AUM, but also in terms of the composition of the AUM, the composition of flows, mix of investors as well a macro picture of mutual funds. Here are key mutual fund trends in February 2023.

Key Trends in Indian mutual funds for February 2023

Here is a collection of some interesting mutual fund trends for the month of February 2023 based on AMFI data release.

1. Over the last year, the total assets under management (AUM) of Indian mutual funds has grown from Rs38.56 trillion to Rs40.69 trillion. In terms of average assets, the AUM is up 5.5% on a yoy basis. The AUM growth in equity funds and passive funds has been largely offset by AUM outflows from active debt funds and liquid funds between February 2022 and February 2023.

    

2. Let us now turn to the scheme wise composition of mutual funds AUM and how it changed over the last one year? Between February 2022 and February 2023, the AUM of active debt funds has fallen from 24.1% of overall AUM to 19.2% of AUM; a market share loss of 490 basis points. Liquid fund AUM is down 20 bps from 16.5% to 16.3%, in terms of its market share of the overall composition of AUM. 

    

3. It is hardly surprising that active equity funds have seen a sharp improvement in AUM share across the board. For instance, active equity-oriented schemes saw their market share rise 310 bps from 48.2% to 51.3% between February 2022 and February 2023. Interestingly, the AUM of ETFs and FOFs is up 200 bps from 11.2% to 13.2%; indicating a sharp move within equities to passive assets.

    

4. The shift in the composition of mutual funds AUM away from institutions and towards individual investors is not just intuitive but also backed by evidence. That trend got accentuated in the last one year. Share of individual investors went up 310 bps from 54.5% to 57.6% between February 2022 and February 2023. During the same period, share of institutional clients in the AUM fell further from 45.5% to 42.4%.

    

5. How have individual and institutional investors allocated money to different asset classes as of February 2023? In active debt schemes, 57% of AUM was from institutions and 43% from individual. In equity schemes, institutions were just 11% while individuals were steady at 89%. Institutions were, however, a good 86% of the AUM of liquid funds; essentially being a treasury product. What needs to change is that individuals accounted for just about 10% of ETF/FOF AUM while institutions account for 90%. Individuals are still not making the best of passive strategies.

    

6. What does this mean for the wallet share of an individual? Individuals have 80% of their MF AUM in equity-oriented funds, 14% in ETFs, 4% in liquid funds and just 2% in debt funds. Institutions have 33% of their wallet in liquid funds, 28% in ETFs/FOFs, 26% in debt funds and just 13% in equity-oriented funds.

    

7. Who contributed more to the AUM growth between February 2022 and February 2023? Was it individuals or institutions? Total AUM was up 5.5% from Rs38.56 trillion to Rs40.69 trillion yoy. This was largely driven by individual investor AUM growing from Rs21.02 trillion to Rs23.44 trillion (a growth of 11.5%), assisted by a mix of NFOs, SIP flows and folio accretion. In contrast, the AUM of institutional investors fell from Rs17.54 trillion to Rs17.25 trillion in the same period. This can be attributed to the predominant exposure of individuals to equity over debt.

    

8. How does the mix of AUM look when classified into T-30 and B-30 cities. (T-30 represents the top 30 cities while the next rung is represented by B-30). As of February 2023, AUM from B-30 cities has been stable at 17%, while 83% of the AUM came from the T-30 cities. Here is how the asset mix varies in the B-30 cities and T-30 cities.

    

9. Let us first talk about B-30 cities as of February 2023. The share of equity and growth funds in AUM remain stable at 79% with the balance 21% accounted for by non-equity funds. If you go to the T-30 cities, 45% of AUM was in equity schemes and 55% was in non-equity schemes. These numbers have been stable over the last one year and can be attributed to the presence of large corporates and institutions in T-30 cities; where most corporate and bank treasuries are located.

    

10. Are individuals making the best of direct plans. While entry loads were scrapped in 2009, the Direct Plan was made official in 2013 to enable reduction in TER. This enhances returns. The overall mutual fund flows through the Direct Route were stable at 45%. However, the direct segment is dominated by corporates and institutions. In the case of individuals, only 18% of retail investors and 24% of HNIs invested through Direct route. The percentage is as high as 90% for institutional investors and 77% for corporates. Institutions and corporates preferred the direct route over regular route to save TER.

     

11. How have the folios (investor accounts unique to an AMC) grown in India. Folios are considered a much better reflection of retail spread of mutual fund investments. In September 2014, the total number of mutual fund folios stood at 3.95 crore. Between September 2014 and February 2023, the total number of folios have grown 3.65 times to 14.43 crore folios. Post the COVID pandemic, there has been a 61% surge in the number of mutual fund folios from 8.97 crore to 14.43 crore.

     

12. Let us turn to folio composition! Out of the 14.43 crore folios in mutual funds as of February 2023, retail individuals accounted for 91.1% of the folios, high net worth investors (HNIs) accounted for 8.2% of the folios while institutions accounted for just about 0.7% of the overall MF folios. Out of the total folios, 67.5% are in equity-oriented funds, 12.5% of the folios are in ETFs / FOFs, 8.5% folios in hybrid funds and the remaining folios distributed across debt, liquid, solution funds and close-ended funds.

     

13. Are retail investors staying invested in mutual funds for the long haul, or are they taking a very myopic view, as is the normal belief? Interestingly, a good 44.4% of the equity assets of mutual funds stayed invested for more than 2 years while 72.1% of equity fund investments stayed put for more than 1 year. What about retail investors in particular? More than 57% of the equity assets were held by retail investors for at least 2 years and 80% of such equity fund investments for at least one year. This dispels the myth that retail investors take a myopic view of equity fund investing. The rise in SIP flows is a clear indication that retail is staying invested in equity funds, through thick and thin.

In a nutshell, here are 3 key takeaways from the above mutual fund trends. Firstly, equity fund investors still seem to prefer active equities over passive equities, which is just about catching up. Secondly, retail investors are not making the best of the direct investing route and saving on TER. Lastly, equity fund investors are taking a genuinely long-term view of their investments in equity funds. At least, some things are changing for the better.