Equity fund inflows robust in Feb-22 with SIP support

The story of equity flows in the month of Feb-22 was relatively robust despite tepid NFO collections. NFOs were nowhere close to the Dec-21 levels. The NFO collections in Feb-22 at Rs3,513cr was much lower than the Aug-21 peak of Rs23,688cr. The limited NFO flows in Feb-22 were driven by flexi-cap funds and index funds.

The overall MF AUM in Feb-22 tapered from Rs38.01 trillion to Rs.37.56 trillion MOM due to a sharp fall in the indices. There were inflows across equity, hybrid and passive funds but debt funds saw outflows in Feb-22. The AUM has shown a steady growth over the last 1 year on a mix of index growth and strong SIP and lump-sum flows.

The overall MF net inflows for Feb-22 stood at Rs31,534cr with only debt funds showing net outflows. The AUM mix as on 28-Feb was Income Funds (37.52%), equity funds (34.46%), hybrid funds (12.66%) and passive & solution funds (13.73%). The residual 1.63% were close-ended funds, where AUM was largely neutral for Feb-22.

This gap of 306 bps between equity fund AUM and debt fund AUM has widened sharply over Jan-22 due to the sharp correction in equities. While equity fund share has gone down, it has been taken up by hybrids and passive funds. Overall AUM grew 18.71% yoy from Rs31.64 trillion in Feb-21 to Rs37.56 trillion in Feb-22. Now hybrids, solution funds and passive funds account for 26.4% of the total AUM, emerging as an alternative asset class.

Debt funds see negative flows in Feb-22 amidst yield concerns

After heavy outflows of Rs49,154cr in Dec-21, debt funds saw net inflows of Rs5,088cr in Jan-22. However, the month of Feb-22 again saw debt fund outflows to the tune of Rs(8,274)cr, despite strong positive inflows into liquid funds during the month.

We first focus on the limited debt fund categories that saw net inflows in Feb-22. There were two main categories; both at the short end of the yield curve. Liquid funds saw net inflows of Rs40,273cr while overnight funds saw net inflows of Rs1,296cr. These were the only two categories of debt funds to see net inflows in Feb-22.

Among fund categories that saw net outflows in Feb-22, short duration funds saw outflows of Rs(12,092)cr, floater funds Rs(10,323)cr, corporate bond funds Rs(10,219)cr, low duration funds saw Rs(4,982)cr, banking & PSU funds Rs(3,654)cr, medium to long duration funds Rs(2,907)cr and dynamic bond funds Rs(1,705)cr. Other categories of debt funds that also saw meaningful outflows included medium duration funds and ultra-short duration funds. There was a lot of selling at the long end of the yield curve, on fears of rapid hardening of bond yields in line with the Fed hawkishness.

Equity Fund inflows sharply higher at Rs19,705cr on value buying

Net inflows into equity funds surged sharply in Feb-22 to Rs19,705cr. The net equity fund flows had topped Rs25,077cr in Dec-21 but had tapered to Rs14,888cr in Jan-22. In Feb-22, the flows into equity funds again bounced back. SIP numbers are encouraging but the real story is bigger. Despite geopolitical uncertainty, spike in oil prices and sharp correction in Indian markets; investors kept their faith in Indian equities. That is the biggest takeaway. All the categories of equity funds saw net inflows in Feb-22.

Let us look at specific inflows. During Feb-22, Multi-cap funds plus flexi-cap funds led the way with inflows of Rs4,459cr. Among other key categories, Sector Funds saw inflows of Rs3,441cr, Large Cap funds Rs2,339cr, large & mid-cap funds Rs2,036cr, focused funds Rs1,956cr, mid-cap funds Rs1,954cr, small cap funds Rs1,430cr and ELSS funds Rs1,098cr. ELSS demand reflected last quarter demand for tax saving products. Equity funds saw cumulative net inflows of Rs145,051cr in the 12 months since Mar-21.

Hybrid fund inflows just about stay positive in Feb-22

Net flows into hybrid funds were tepid at Rs3,177 crore in Feb-21 compared to a robust Rs12,132cr in Jan-22. This was due to the absence of any significant NFO raising flows for this category. Among specific hybrid categories, Balanced Advantage Funds led the way with inflows of Rs2,118cr while aggressive hybrid funds saw net inflows of Rs910cr. Multi-asset allocation funds and Equity Savings funds also saw positive inflows while arbitrage funds were the only category to witness negative flows to the tune of Rs336cr in Feb-22.

Passive fund flows in Feb-22 were again robust at Rs16,521 crore, almost twice the figure of Rs8,861cr in Jan-22. Other ETF funds comprising of bond ETFs and silver ETFS saw smart inflows of Rs10,791cr while index ETFs saw net inflows of Rs5,748cr in Feb-22. Among other passive categories, gold ETFs saw limited outflows while FOFs attracted small inflows in Feb-22. The hybrid, passive and solution funds now account for 26.64% of overall MF AUM.

Robust SIP inflows in a weak month was the big story of Feb-22

While net inflows into SIPs crossed the magic mark of Rs10,000cr in Sep-21, it has sustained SIP flows above Rs11,000cr since Nov-21. For Feb-22, the SIP flows stood at Rs.11,438cr, marginally lower than the figure of Rs11,517cr in Jan-21. Now, why is this story so special for the Indian markets? It is because of the nature of the market in Feb-22.

By now, it is almost axiomatic that SIPs are emerging as the veritable driver of flows into equity and quasi equity fund categories. However, Feb-21 was not a normal month. Apart from the correction in the Nifty and Sensex, the month also saw a sharp 40% rally in crude oil prices and a state of war between Russia and Ukraine. Amidst this chaos, FPIs have withdrawn over $20 billion from equities in the last 5 months. Despite negative headwinds, SIP flows into MFs remained robust.

That goes to show that Indian mutual fund investors are finally coming of age. The benefit of rupee cost averaging  is best experienced when you persist through the cycles of the market. The numbers show that finally, Indian investors are willing to persist with equity for the long haul.