What we read from the MF flows data for November 2022?

12 Dec 2022 , 09:50 AM

In the last few months a few clear trends have emerged in the mutual fund flows.

• Mutual Fund investor numbers have been growing in numbers, as measured by the number of folios. Most of the growth has been coming in equity funds followed by passive funds like index funds and index ETFs.
• Mutual fund investors from Tier-2 and Tier-3 cities are getting a lot more aggressive and also more consistent in investing in mutual funds. This has largely been an outcome of more aggressive market adopted by AMFI and the fund AMCs.
• SIPs have become the default approach for mutual fund investors to onboard and continue their journey in mutual fund investing. People are not only continuing their SIPs for longer, but SIP flows continue even amidst lumpsum outflows.
• Indian mutual fund investors are showing a clear preference for equity and equity linked funds over debt funds, as is evident from growing AUM. However, within equity, it is the passive funds that are really contributing to the growth in AUM.

Key takeaways from the November 2022 Mutual Fund flow data

Here is what we read from the mutual fund net flow data for the month of November 2022, put out by AMFI.

1. Total assets under management (AUM) of the Indian mutual fund segment crossed Rs40 trillion for the first time in its history. This growth has been also supported by the number of folios (unique account numbers) to 13.98 crore folios, which is a barometer of retail spread. However, due to the dollar appreciating to beyond Rs82/$, the dollar AUM still stays below $500 billion.
2. Overall net flows into mutual funds for November 2022 remained robust at Rs13,264 crore. Equity funds, debt funds and passive funds saw positive net flows in November 2022 while hybrid funds continued to see net outflows in the month.
3. New fund offerings (NFOs) were robust in the month of November 2022 at Rs7,191 crore, although it is yet to build to previous levels of Rs20,000 crore plus. Closed-ended FTPs accounted for 50% of NFO flows, while the balance was predominantly accounted for by sector funds and index funds.
4. There is a clear shift in AUM share between active and active debt funds in the last one year. Between November 2021 and November 2022, the AUM of debt funds fell from Rs14.52 trillion to Rs12.57 trillion. During the same period, AUM of equity funds expanded from Rs12.78 trillion to Rs15.58 trillion. This was partially due to favourable market conditions, but also largely due to the colour of the flows into mutual funds.
5. The big story of the last 1 year has been the rise of alternate fund classes (other than equity and debt funds). Today, they account for about 30% of the total assets under management (AUM) of the mutual fund segment overall. The AUM of the specific passive funds category has surged in last one year from Rs9.42 trillion to Rs11.93 trillion.
6. Debt funds saw marginal inflows of Rs3,669 crore net in November 2022. The major inflow categories were overnight funds, ultra-short term funds and short duration funds. The categories that saw net selling in the debt funds category were liquid funds, money market funds and corporate bond funds.
7. Let us turn to the equity fund flows in the month of November 2022. The net inflows were just Rs2,258 crore, despite SIP flows of Rs13,306 crore and NFOs of Rs7,191 crore. That shows large chunks of lumpsum selling in equity funds. Fund categories that saw net buyer in November 2022 were sectoral funds and small cap funds. On the other hand, large cap funds, flexi/multi-cap funds and ELSS funds saw net outflows.
8. How did the hybrid funds perform. They witnessed outflows of Rs6,477 crore in November 2022; a trend visible in the last few months. Bulk of the net selling came from arbitrage funds at Rs4,075 crore came from arbitrage funds. However, one key trends is that the much fancied balanced advantage funds (BAFs) have been seeing net outflows in the last two months after seeing consistent inflows since the pandemic.
9. It was the category of passive funds that emerged as the star of the month once again. These passive funds witnessed net inflows of Rs10,394 crore let by index funds at Rs8,602 crore and equity & debt index ETFs saw at Rs1,967 crore in November 2022. Among passive categories, only gold funds saw significant outflows in November, largely because a strong dollar is never conducive to gold demand.
10. No discussion on mutual fund flows is complete unless we look at the SIP flows. Systematic Investment Plans have become a big hit in the last few years, especially among the retail investors and focussed more on the millennial investors. For the month of November, the net flows from SIPs were to the tune of Rs13,306 crore, the highest on record till date.
11. One way to compare the SIP flows is to annualize the FY23 SIP flows based on 8 months data which comes to Rs150,872 crore for FY23 as a whole on estimated basis. While this is an estimate, past experience has been that SIP flow estimates after 6 months are fairly realistic. This reflects a growth of 21.12% over FY22 and a growth of 57.03% over the corresponding figure in FY21 . FY23 SIP collections are expected to be 72.58% higher than the average of the last 6 years prior to FY23.
12. One logical outcome of this growth is that the average monthly SIP ticket (AMST) has grown almost 3.44 times over FY17. In percentage terms, the growth has been steady over the last two fiscal years. What is gratifying is that this growth has come in tandem with growth in SIP folios and SIP AUMs, which is a major positive story of retail spread.
13. What about SIP folios and SIP AUMs in November 2022? SIP folios increased from 593.30 lakhs in October 2022 to 604.57 lakhs; crossing the 6 crore mark for the first time in November 2022. It reflects a net accretion of 11.27 lakh SIP folios or 1.90%. What about SIP AUM? The SIP AUM has grown 0.29% MOM in November 2022 from Rs664,781 crore to Rs683,852 crore.
14. Finally, we take a sneak peak at the SIP Stoppage ratio, which is the ratio of SIP accounts discontinued in a specified period to new SIP accounts opened. Lower this ratio, the better it is. SIP stoppage ratio was 57.84% in FY20 and 60.88% in FY21 amidst COVID panic. This reduced sharply to 41.74% in FY22. However, for in FY23, the SIP stoppage ratio has once again risen to 52.92% levels, showing some signs of panic at higher levels.

That has broadly been the story of mutual fund flows in the month of November 2022. For now, the big opportunity in SIP arises from a growing middle class in India and a rising millennial population. At 6 crore SIP folios in a population of 140 crore, India may have just scratched the surface. That remains the billion dollar opportunity.