Mutual fund folios inch closer to 20 Crore mark in July 2024


JULY 2024 MARKED THE RETURN OF DEBT FUNDS

The big story of July 2024 was that debt funds made a sharp rebound with net inflows of ₹1,19,588 Crore, although bulk of the flows continued to be focused on the shorter end of the yield curve in the form of liquid funds and money market funds. Equity Funds had another robust month of inflows crossing ₹35,000 Crore for the third month in a row. Once again, it was the sectoral funds and the multi-cap / flexi-cap funds that dominated the flows in the week. Among the other equity categories, large cap funds saw tepid flows while the mid-cap fand small cap funds continued to get robust flows in the month.

The big influence in the month was the budget. The Union Budget presented on July 23, 2024 made some far reaching changes to the taxation of capital gains on mutual funds. For instance, the rates of short term capital gains tax was raised from 15% to 20% on equity funds, while the rates of long term capital gains tax was also raised from 10.0% to 12.5%. That was partially compensated by a higher exemption limit at ₹1.25 Lakhs, instead of ₹1.00 Lakhs. However, there were some gains for other categories of funds. The definition of long term for hybrid funds was reduced from 36 months to 24 months, while the rates of long term capital gains tax on non-equity funds was cut from 20% to 12.5%, although the indexation benefits were also withdrawn. Overall, there could be some specific issues, but the impact of these budgetary changes on asset allocation is likely to be positive.

SIPS AND NFOS MAKE A LEAP OF FAITH IN JULY 2024

They are called the swing factors. Normally, it is the SIP flows and the NFO flows that make the big difference to flows in any month. For the month of July 2024, the gross SIP flows were at a record level of ₹23,332 Crore, a good 9.7% higher than the SIP flows in June. In FY25, SIP flows have been well above ₹20,000 Crore in all the four months. In a sense, the SIP flows are reflective of the financialization of savings and the financial planning approach that investors are increasingly taking with respect to managing their monies. Let us now turn our attention to the other big swing factor; the new fund offerings (NFOs).

For July 2024, mutual funds saw NFO flows of ₹16,565 Crore across 15 NFOs. Out of these 15 NFOs, 2 NFOs from thematic funds and 1 NFO from multi-cap funds accounted for close to 83% of the total NFO flows in the month of July 2024. That is reflected in the monthly net inflows into equity funds. Debt fund NFOs and the NFOs of closed ended FTPs are totally absent in the NFO list, especially after the unfavourable tax treatment meted out to them.

WHO RULES 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 is a group of fund categories with over ₹100,000 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; one more than 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. Other than liquid funds, only money market funds has crossed the ₹2 Trillion mark.

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) crossed the ₹4 Trillion  mark. There are 3 categories of equity funds (large cap funds, mid-cap funds, small cap funds) having AUM of between ₹3 Trillion and ₹4 Trillion. Large & Mid-Cap funds and ELSS Funds have an AUM of between ₹2 Trillion and ₹3 Trillion; while multi-cap funds, value funds and focused funds have AUM between ₹1 Trillion and ₹2 Trillion. Sectoral / Thematic funds are the are the largest category by AUM, followed closely by Flexi-Cap funds. The thematic fund dominance is quite disconcerting at market peaks!

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 and Arbitrage Funds with an AUM of just below ₹2 Trillion AUM mark. BAFs rule the AUM rankings, followed by Aggressive Hybrid Funds. Finally, let us turn to the passive funds category. Among passive funds AUM as of end July 2024; index funds and index ETFs are already in that category. If you look at all fund categories, across equity, debt, hybrids, and passives; index ETFs have the highest AUM at ₹7.77 Trillion. This is a mix of equity and bond index ETFs.

MUTUAL FUNDS SEE ROBUST INFLOWS IN JULY 2024

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)

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 (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

Data Source: AMFI (negative figures in brackets)

Here are some quick takeaways. Debt funds saw net inflows  of ₹1.20 Trillion in July 2024, after sharp outflows in June due to quarterly corporate advance tax  related redemptions. Equity fund inflows had touched a lifetime record in of ₹40,608 Crore in June 2024, and slightly lower in July 2024. In last one year, the big story has been the emergence of hybrid funds as a smart asset allocation option. Within the equity category, there has been a perceptible shift away from the traditional large cap / mid-cap funds to more complex thematic, smart alpha and multi-cap funds.

CHARTING THE AUM MIX PROGRESSION IN JULY 2024

The table below captures the key shifts in the AUM of various categories of funds. For a better reading of the broad trends, we have combined hybrid funds, solution funds and passive funds into one single category of Alternate AUM.

Month Debt AUM

(₹ Trillion)

Equity AUM

(₹ Trillion)

Alternate AUM

(₹ Trillion)

Total AUM

(₹ Trillion)

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
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

Data Source AMFI

For July 2024, active debt fund AUM increased to ₹15.44 Trillion compared to ₹14.33 Trillion at the close of June 2024. This is the highest active debt fund AUM we have seen in the last one year and can be attributed to positive flows in three out of the last 4 months. Debt fund AUM is up 9.27% over June 2024 and on a yoy basis up 8.96% over July 2023. In July 2024, active equity fund AUM edged up to record levels of ₹29.34 Trillion; showing sequential growth of 6.00% and yoy growth in AUM of 60.77%. That is not surprising with the Nifty and Sensex at lifetime highs and having rallied more than 30% in the last one year. Alternate assets saw AUM grow by 4.40% sequentially and 45.51% yoy. Alternatives are clearly emerging as a potent asset class in itself. Here are the AUM shares for the last 6 months

Month Active Debt Funds Active Equity Funds Hybrid
Funds
Passive Funds Solution Funds Close-ended Funds
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%
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%

If you take a 5-month perspective (July 2024 over February 2024), share of active equity fund AUM is up 276 bps and share of passive funds is up 21 bps. The share of hybrid funds and solution funds is flat over February, while the share of active funds is down -281 bps. However, it must be noted that the fall in debt fund share is more relative in nature. Active and passive equity funds as well as hybrid funds (to some extent) gain from a rising index. The active debt funds have no such benefits. Hence the fall in share of debt funds should be looked at more as a value shift rather than an interest shift.

ACTIVE DEBT FUNDS: AFTER THE SELL-OFF, IT WAS THE REVIVAL

Debt funds saw net inflows of ₹1,19,588 Crore in July 2024, as the much of the quarter end redeemed funds came back into liquid and money market funds. Interestingly, the debt funds have seen net inflows in 3 out of the last 4 months, which is a positive secular signal. There were limited outflows from debt funds in June 2024 with some of them being; Credit Risk Funds (₹543 Crore), Medium Duration Funds (₹370 Crore), and Banking & PSU Funds (₹308 Crore). Negative flow in debt funds in July 2024 were few and far between.

Among the debt fund categories that saw net inflows in July 2024 were Liquid Funds at ₹70,061 Crore, Money Market Funds at ₹28,738 Crore, Ultra Short Duration Funds at ₹8,207 Crore, Overnight Funds at ₹4,452 Crore, Short Duration Funds ₹2,603 Crore, Corporate Bond Funds ₹2,261 Crore, and Gilt Funds ₹1,262 Crore. There were a few other funds also with positive inflows in the debt funds category, but they were not too material. Not surprisingly, it was treasury fund that again dominated the outflows, with the outflows for quarterly corporate advance tax payments still being the key swing factor for debt fund flows.

ACTIVE EQUITY FUNDS: ANOTHER ROBUST MONTH IN JULY 2024

For the month of July 2024, equity funds again saw robust net inflows of ₹37,113 Crore, lower than the net inflows into equity funds in June 2024. In the last 3 months, the equity fund flows have averaged ₹37,473 Crore. July 2024 marked the consolidation of this uptrend. Once again, Sectoral / Thematic funds dominated inflows at ₹18,386 Crore; largely led by the NFOs, where sectoral fund NFOs of Edelweiss Business Cycle Funds and ICICI Pru Energy Opportunities Fund accounting for 59% of all NFO flows in July 2024. The other fund categories that saw net inflows in July 2024 include; flexi cap/ multi-cap funds ₹10,138 Crore (led by Frankling India Multi-Cap Fund NFO), Large & Mid Cap funds ₹2,622 Crore, Value Funds ₹2,171 Crore, small cap funds ₹2,109Crore, mid cap funds ₹1,644 Crore, and large cap funds ₹670 Crore. ELSS funds and Focused funds were the only two categories of funds that saw negative flows in the month of July 2024.

HYBRID FLOWS SPIKE; PASSIVE FLOWS STEADY

The combination of hybrid funds and solution funds got net inflows of ₹17,663 Crore, nearly twice the net inflows in June 2024. In the hybrid category, net inflows into arbitrage funds dominated at ₹11,015 Crore as it is emerging as an alternative to liquid funds. What about other categories? Multi-asset allocation funds saw net inflows of ₹3,126 Crore, dynamic asset allocation funds (BAFs) ₹1,798 Crore, and equity savings funds ₹1,277 Crore. Multi asset allocation funds, BAFs and equity savings funds are more of a bet on the asset allocation approach to mutual fund investing, which actually appears to be catching on.

Passive funds had a relatively steady month in July 2024 with net inflows steady at ₹14,778 Crore. This was driven by inflows of ₹8,020 Crore into Index Funds, and ₹5,787 Crore into index ETFs. Flows into gold funds were positive at ₹1,337 Crore. Fund of funds continued to see negative flows, largely due to the restrictions imposed on such international FOFs.

WHAT WE READ FROM THE AMFI DATA

There were 3 quick takeaways from the mutual fund flows data for July 2024. Firstly, the debt fund flows are still a treasury cyclical play and the Fed rate cut could provide a trigger. Secondly, equity funds are seeing a lot of interest in thematic funds, which are technically high risk, so the risk appetite appears out of sync with valuations. Finally, investors are selecting hybrid funds with focus on asset allocation; which is a good sign. Apart from all that, the good news is that the appetite for passive funds is back!



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