Equity fund flows taper but debt fund flows pick up in April 2022

In March 2022, selling in debt funds at Rs1.15 trillion was due to the treasury effect, but debt funds saw net outflows through FY22. The reasons had more to do with the hawkish stance of the Fed, but things look better in April 2022. Equity fund flows have tapered but debt fund flows have picked up. NFO collections in April 2022 stood at Rs3,240 crore, largely accounted for by the ICICI Prudential Housing Opportunities Fund NFO. In April 2022, equity funds flows were subdued due to weak flows into NFOs and lower flows through SIPs.

The overall MF AUM in April 2022 increased to Rs38.04 trillion. While debt funds dominated the inflows in April 2022, one could also see fairly robust flows into equity funds, hybrid funds and passive funds. The big outflow of Rs20,327 crore was seen in closed-ended fixed term plans (FTP). However, April was a volatile month amidst Fed hawkishness, cost inflation and geopolitical worries. A clearer picture should emerge in coming months.

Data Source: AMFI

The overall MF net inflows for April 2022 stood at Rs72,847 crore with outflows of Rs20,327 crore from closed ended FTPs. All categories of open ended funds saw net inflows in April 2022. The AUM mix as of April 2022 was Income Funds (35.64%), equity funds (35.92%), hybrid funds (12.75%) and passive & solution funds (14.65%). The residual 1.04% were close-ended funds.

In March 2022, the AUM of active equity funds had crossed that of debt funds. That lead has been sustained but the gap has narrowed with debt funds seeing solid inflows in April 2022. Overall AUM grew 17.48% yoy from Rs32.38 trillion in April 2021 to Rs38.04 trillion in April 2022. Now hybrids, solution funds and passive funds account for 27.40% of the total AUM, emerging as a distinct alternate asset class.

Debt funds see robust inflows in April 2022

April 2022 saw a sharp revival in flows into debt funds as the year-end treasury blues got sorted out. Normally, towards the year end, advance tax and indirect tax payments put pressure on treasury holdings in debt funds. Debt fund outflows were Rs8,274 crore in February 2022 and the outflows deepened to Rs114,824 crore in March 2022. However, things turned around in April 2022 with net debt fund inflows of Rs54,757 crore.

Let us first look at the debt fund categories that saw outflows in April 2022. The major outflows were Rs4,452 crore from short duration funds, Rs3,096 crore from Banking & PSU Funds, Rs2,553 crore from Corporate Bond funds and Rs1,364 crore from medium duration funds. Other outflows were smaller in significance. However, inflows into debt funds were a lot more robust in April 2022.

In April 2022, several categories of debt funds saw strong inflows. These included liquid funds Rs28,731 crore, money market funds Rs16,194 crore, ultra-short duration funds Rs15,089 crore, overnight funds Rs4,028 crore, floater funds Rs1,518 crore and low duration funds Rs1,492 crore. There were 2 diverse trends visible. Short-end treasury management funds have seen reversal of March 2022 outflows, although net inflows are just half of March 2022 outflows. Categories like banking / PSU funds, gilt funds, corporate bond funds and credit risk funds continue to see outflows, indicating caution on hardening bond yields.

Equity Fund inflows tapered, but still robust in April 2022

After witnessing record equity fund inflows of Rs28,464 crore in March 2022, the month of April 2022 was subdued, with net inflows into equity funds tapering to Rs15,890 crore. With SIP flows tapering, lump sum selling building up and tepid NFO flows, the flows into equity funds in April 2022 were relatively tepid.

NFO inflows were dominated by ICICI Prudential Housing Opportunities Fund which almost accounted for the entire NFO inflows in April 2022. However, let us not miss the wood for the trees. Flows across all equity fund categories remained positive despite headwinds like geopolitical uncertainty, spike in oil prices and consistent FPI outflows. That is an indication that investors have kept their faith in Indian equities as an asset class in April 2022 also.

Let us look at specific inflows. During April 2022, Multi-cap funds plus flexi-cap funds led the way with inflows of Rs3,049 crore. Sector funds collected Rs3,844 crore but that was largely due to the ICICI Pru NFO. Among other key categories, large & mid cap funds saw inflows of Rs2,050 crore, small-cap funds Rs1,717 crore, mid-cap funds Rs1,550 crore, focused funds Rs1,278 crore and large cap funds Rs1,259 crore.

The growth in overall AUM of equity funds has also been triggered by a growth in folios with equity folios touching an all-time high level of 8.72 crore at the close of April 2022 out of total mutual fund folios of 13.13 crore; or 66.43% of overall folios.

Hybrid flows recovers, but passives continue to make hay

After seeing outflows of Rs3,604 crore in March 2022, the hybrid flows turned around to Rs7,240 crore  in April 2022. Among specific hybrid categories, Arbitrage Funds saw inflows of Rs4,093 crore while balanced advantage funds saw net inflows of Rs1,543 crore. Other categories like aggressive and conservative hybrid funds also saw smaller inflows.

Passive fund continued their surge in April 2022 with inflows robust at Rs15,888 crore. The passive surge was led by equity and debt index ETFs with inflows of Rs8,663 crore, index funds at Rs6,062 crore and even gold funds seeing inflows of Rs1,100 crore in April 2022. The hybrid, passive and solution funds; jointly account for 27.40% of overall AUM.

SIPs tapered in April 2022, but still remains formidable

While net inflows into SIPs had touched a record Rs12,328 crore in March 2022, the SIP flows tapered to Rs11,863 crore in April 2022. SIPs represent the long term commitment of retail investors and are an important barometer of sustainability of flows into retail mutual fund assets. What is gratifying is that the SIP folios have surged further to 5.39 crore folios and that is a good indication of the widening SIP base.

In a way, SIPs have emerged as the onboarding point for retail investors into the world of mutual funds. Not only have investors willingly adopted this route, now they do not rush to redeem the funds at the first sign of market correction. After all, it is in volatile markets that rupee cost averaging works in favour of SIPs. That seems to be work in progress.