MACRO PICTURE OF MF FLOWS IN MARCH 2024 QUARTER
Let us begin with the macro picture of how the fund flows looked like in the quarter ended March 2024. The total gross flows into open ended funds in the March 2024 quarter stood at ₹30.48 Trillion while the redemptions of open ended funds in the quarter stood at ₹29.63 Trillion, resulting in net redemptions into open ended funds overall at ₹0.85 Trillion. Close-ended funds saw negative flows in the quarter to the tune of ₹2,305 Crore on a net basis, although it hardly made any meaningful difference to the overall flows into mutual funds in the March 2024 quarter. The reason we look at quarterly flows is that monthly flows can be notoriously erratic, especially in the case of debt funds. For instance, the overall picture for the March 2024 quarter would have been much better; but for the heavy net outflows of ₹1.98 Trillion from debt funds in the month of March 2024.
| Macro picture of flows in mutual funds in March 2024 quarter | ||||
| Fund Category | Funds Mobilized | Redemptions | Net Flows | Net AUM (Mar-24) |
| Open Ended Funds | ₹30,48,319 Crore | ₹29,63,565 Crore | ₹84,754 Crore | ₹53,12,736 Crore |
| Close Ended Funds | ₹347 Crore | ₹2,652 Crore | ₹(2,305) Crore | ₹27,459 Crore |
| Mutual Funds Overall | ₹30,48,666 Crore | ₹29,66,217 Crore | ₹82,449 Crore | ₹53,40,195 Crore |
Data Source: AMFI
As of the close of the March 2024 quarter, the net AUM of Indian mutual funds stood at ₹53.40 Trillion as compared ₹50.78 Trillion at the close of December 2023 quarter; ₹46.58 Trillion at the close of the September 2023 quarter and ₹44.39 Trillion at the end of the June 2023 quarter. This growth in AUM at rapid clip can be largely attributed to the spike in equity valuations during the period. Also, the flows into debt funds may have been erratic, but inflows into equity funds, hybrid funds and passive funds have been consistent in the March 2024 quarter. That is not surprising because, with India likely to repeat 7% plus growth for the fourth year in a row in FY25, Indian market cap has just crossed ₹400 Trillion.
DEBT FUND FLOWS IN MARCH 2024 QUARTER
| Flows into Debt Funds in the Mar-24 quarter (AMFI) | |||
| Funds Mobilized | Redemptions | Net Flow | Net AUM as of Mar-24 |
| ₹26.94 Trillion | ₹27.52 Trillion | ₹(0.58) Trillion | ₹12.62 Trillion |
Data Source: AMFI
Indian debt funds saw net outflows of ₹(58,021) Crore in the March 2024 quarter, which is higher than the outflows in the December 2023 quarter. Ironically, in the 6 quarters prior to the June 2023 quarter, debt funds had seen consistent net outflows. The net outflows for March 2024 quarter were largely driven by treasury outflows from liquid funds, which is normal during the year-end quarter to fund advance tax and GST payments. However, Investors did show a tendency to lock themselves into long dated instruments in the March 2024 quarter as is evident from the net quarterly inflows into long duration funds and corporate bond funds.
Let us look at key flow drivers and start with inflows? Corporate bond funds saw net inflows in the quarter of ₹4,038 Crore, while money market funds saw net inflows of ₹2,068 Crore, and corporate long duration funds saw inflows of ₹1,986 Crore. Other than these, gilt funds saw subdued net inflows of ₹414 Crore in the March 2024 quarter. The long end categories saw some interest as investors tried to lock themselves into longer maturities at higher yields. However, the Fed and the RBI continue to be ambivalent about rate cuts.
However, the bigger story in the March 2024 quarter was on the sell side of debt fund flows. Liquid Funds saw outflows of (₹24,860 Crore), Overnight funds (₹15,373 Crore), low duration funds (₹8,141 Crore), ultra short duration funds (₹6,561 Crore), Floater Funds (₹4,562 Crore), and short duration funds (₹4,327 Crore). Clearly, the number of funds seeing redemptions and even the intensity of redemptions was much higher in the March 2024 quarter as compared to the funds that witnessed inflows. While liquid funds came under pressure in March, there were strong inflows in January and February 2024.
Total AUM of all active debt funds at the close of the March 2024 quarter fell further to ₹12.62 Trillion, compared to ₹12.91 Trillion at the close of December 2023 quarter, ₹13.05 Trillion at the close of September 2023 quarter and ₹13.47 Trillion at the close of the June 2023 quarter. The share of debt fund AUM in overall open-ended MF AUM fell sharply to 23.64% as of March 2024, compared to 25.42% at the close of December 2023 quarter, 28.19% at the end of the September 2023 quarter, and 30.35% at the close of June 2023 quarter. In a nutshell, it is not just the debt fund AUM that has consistently fallen over the last 4 quarters, but even the share of debt funds are sharply down.
COLOUR OF EQUITY FUND FLOWS IN MARCH 2024 QUARTER
| Flows into Equity Funds in the Mar-24 quarter (AMFI) | |||
| Funds Mobilized | Redemptions | Net Flow | Net AUM as of Mar-24 |
| ₹162,475 Crore | ₹91,195 Crore | ₹71,280 Crore | ₹23.49 Trillion |
Data Source: AMFI
Net flows into equity funds in the March 2024 quarter stood at ₹71,280 Crore compared to ₹52,491 Crore in the December 2023 quarter, ₹41,963 Crore in the September 2023 quarter and more subdued inflows of ₹18,358 Crore in the June 2023 quarter. The enthusiasm in the equity fund flows even at higher levels has been sustained by a spike in SIP flow numbers as well as the number of NFOs raising fresh funds; especially across select categories like sectoral and thematic funds. Within the equity fund category, the series of warnings by SEBI to AMCs on small cap funds led to fund flows slowing for small and mid-cap funds and shifting to the large cap funds in the market.
Sector funds and thematic fund have a special edge in that they can float a number of NFOs for different themes and sectors, even as SEBI only permits one fund per AMC under each category for the others. Not surprisingly, when it comes to the NFO story, the sectoral funds, thematic funds, and passive funds have a natural advantage; which explains why they have dominated the NFO flows in recent months. March 2024 quarter also saw the trend towards alpha generators like mid-cap funds and small cap funds waning towards the end of the quarter. Index funds and index ETFs have continued to attract interest in the quarter.
The positive flows into equity funds were affirmative in the March 2024 quarter in all the classes of equity funds; except focused funds which saw outflows. Sectoral funds led the way with flows of ₹23,985 Crore followed by multi-cap/flexi-cap funds at ₹15,079 Crore, large & mid cap funds at ₹8,702 Crore, small cap funds at ₹6,085 Crore, value funds ₹5,417 Crore, mid-cap funds at ₹4,887 Crore, and large cap funds at ₹4,336 Crore. Net flows in the quarter were relatively tepid in ELSS funds and dividend yield funds, while focused funds saw net outflows in the quarter. Small cap funds moved from Rank 1 to Rank 4 in flows.
The total AUM of equity funds at the end of the March 2024 quarter stood at ₹23.49 Crore compared to ₹21.79 Trillion as of December 2023. The market share of equity fund AUM in overall AUM stood at 43.99% as of March 2024, compared to 42.92% share as of December 2023 and 41.21% share as of September 2023. On the equity funds front, 2 trends reversed in the quarter. Firstly, the alpha hunting in small and mid-cap funds reduced in the quarter as large cap funds and sectoral funds took centre stage. Secondly, bulk of the AUM accretion in the quarter came from index accretion as Nifty and Sensex scaled lifetime highs.
HYBRID FUND FLOWS IN MARCH 2024 QUARTER
| Flows into Hybrid Funds in the Mar-24 quarter (AMFI) | |||
| Funds Mobilized | Redemptions | Net Flow | Net AUM as of Mar-24 |
| ₹1,14,880 Crore | ₹69,916 Crore | ₹44,964 Crore | ₹7.67 Trillion |
Data Source: AMFI
In March 2024 quarter, hybrid fund not only saw net inflows, but the net inflows at ₹44,964 Crore was higher than the June, September, and December 2023 quarters. Like in the last two quarters, the flows into arbitrage funds continued to lead the way, but others like multi-asset allocation funds are catching up rapidly. In the last few months, the arbitrage funds now only offered higher returns due to volatility, but HNIs also prefer arbitrage funds for parking short term funds due to the tax benefits available, since such arbitrage funds are classified as equity funds for tax purposes. NFOs have been the driver of record net flows into multi-asset allocation funds, which is the new flavour among the hybrid funds. There is a larger story to the Multi asset allocation funds. They act as a natural hedge and diversifier of risk across asset classes in the midst of volatile market conditions. Multi-asset allocation funds also offer an off-the-shelf asset allocation solution, the key to portfolio performance.
Let us look at the specifics of inflows into hybrid funds in the March 2024 quarter. Arbitrage Funds led the way with net inflows of ₹21,819 Crore in the March 2024 quarter. Multi-asset allocation funds saw meaningful net inflows of ₹13,804 Crore in the March 2024 quarter followed by significant inflows of ₹4,359 Crore into Dynamic Allocation Funds (BAFs) and inflows of ₹3,385 Crore into equity savings funds. Even balanced hybrid funds saw net inflows of ₹1,013 Crore. Overall, 5 out of the 6 categories of hybrid funds saw net inflows in the March 2024 quarter; while the two categories of solution funds also saw marginal net inflows in the March 2024 quarter. Total AUM of hybrid funds plus solution funds at the end of March 2024 quarter stood at ₹7.67 Trillion. AUM share of hybrid funds plus solution funds in the overall AUM as of the close of March 2024 stood at 14.36%, compared to 13.86% of overall mutual fund AUM as of the close of the December 2023 quarter.
PASSIVE FUND FLOWS IN MARCH 2024 QUARTER
| Flows into Passive Funds in the Mar-24 quarter (AMFI) | |||
| Funds Mobilized | Redemptions | Net Flow | Net AUM as of Mar-24 |
| ₹76,983 Crore | ₹50,451 Crore | ₹26,532 Crore | ₹9.35 Trillion |
Data Source: AMFI
Passive funds had a relatively subdued quarter. In the March 2024 quarter, net inflows into passive funds stood at ₹26,532 Crore; more than doubling over the corresponding flows into passive funds in the December 2023 quarter. In the current fiscal year FY24, the passive funds did not show the same vigour in terms of inflows as in the previous quarters; and that is understandable as in a bullish market it is the active fund that make the news headlines. There was traction in index ETFs which saw net inflows of ₹17,593 Crore while index funds saw inflows of ₹7,347 Crore and gold ETFs saw net inflows of ₹2,028 Crore during the quarter ended March 2024. FOFs saw net outflows of ₹436 Crore in the March 2024 quarter. In terms of AUM share, the passive funds had an AUM share of 17.50% as of the close of March 2024, compared to 17.21% AUM share as of the end of December 2023.
WHAT WE READ FROM THE AMFI QUARTERLY REPORT?
To sum it up, the March 2024 quarter, had 4 interesting takeaways for investors.
- Today, the fund with the largest AUM is not a debt fund but index ETFs that manage around ₹6.64 Trillion. Of course, this is across equity and debt ETFs. Liquid funds AUM fell sharply to ₹3.64 Trillion as of the close of the March 2024 quarter.
- Debt saw sharp outflows for the third quarter in succession. However, the positive preference is still at the longer end of the yield curve on hopes that locking into higher yields, can give benefits on yields and also on bond price appreciation.
- There are two trends in equities. Firstly, there is a shift back from small cap and mid-cap funds to large cap funds in the March 2024 quarter. Within active assets, preference for alpha hunting is restricted to sectoral and thematic funds.
Finally, hybrid funds and passive funds have emerged as potent alternatives as the allocation and rule based investing is appealing to a lot of younger investors. If you add up passives, solutions, and hybrids, they have a combined market share as of the close of March 2024 quarter of 31.86%. That is certainly a distinct asset class in itself.