Investors buy equity funds in Mar-22 quarter sell debt funds

The quarterly mutual fund flows data for Mar-22 quarter published by AMFI shows strong positive inflows across equity and passive fund assets, moderate flows into hybrid assets and strong selling in debt funds. This is the second consecutive quarter that debt fund flows have been negative. The Mar-22 quarter evinced clear flow bias in favour of equities and alternate asset funds; while debt funds faced the headwinds. Investors are concerned about hawkish central banks.

As of the close of Mar-22 quarter, net AUM of Indian mutual funds stood at Rs37.57 trillion, a loss of -0.42% over Dec-21 quarter. Much of the equity fund and passive fund flow gains were neutralized by the equity market volatility. Average net AUM stood at Rs37.70 trillion. The equity fund AUM accretion in the Mar-22 quarter was triggered by net inflows, despite negative returns on Nifty and Sensex. Here is how MF AUM picked up in the Mar-22 quarter.

As of the Mar-21 quarter, the AUM of Indian mutual funds stood at Rs31.43 trillion. From that point, AUM has grown 19.54% to Rs37.57 trillion. However, this AUM accretion has been driven by a mix of positive flows and gains in the Nifty and Sensex yoy.  Here is how flows into specific categories of funds panned out in the Mar-22 quarter.

How debt fund flows panned out in Mar-22 quarter?

Flows into Debt Funds in the Mar-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Mar-22
Rs22.94 trillion	Rs24.12 trillion	Rs(1.18) trillion	Rs12.99 trillion

Debt funds saw net inflows of Rs59,957cr in Jun-21 quarter and subdued net inflows of Rs10,858cr in Sep-21 quarter. However, debt funds saw net redemptions of Rs21,160cr in Dec-21 quarter, which deepened to Rs118,010cr in the Mar-22 quarter. Overall for FY22, the total net redemption was to the tune of Rs68,355cr. What were the flow drivers? Overnight funds dominated inflows in the Mar-22 quarter at Rs7,802cr. All the other categories of debt funds saw strong outflows.

The Mar-22 quarter story on debt fund flows was tilted towards broad-based redemptions. Short Duration Funds saw outflows of (Rs24,035cr), Corporate Bond funds (Rs23,122cr), Liquid funds (Rs18,728cr), low-short duration funds (Rs15,891cr), floater funds (Rs15,069cr) and Banking and PSU Funds (Rs14,189cr). There were other sell candidates, but with relatively smaller net redemptions in the Mar-22 quarter and these included dynamic bond funds, gilt funds and short to medium term funds.

Total AUM of all debt funds at the close of the Mar-22 quarter stood at Rs12.99 trillion with its overall share of MF AUM falling by 266 basis points over Dec-21 to 34.58%. Over the last one year, the share of debt funds in overall MF AUM has slipped by nearly 1,100 basis points. This is also the first time that Equity Fund AUM has crossed debt fund AUM.

How equity fund flows panned out in Mar-22 quarter?

Flows into Equity Funds in the Mar-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Mar-22
Rs113,420cr	Rs50,363cr	Rs63,057cr	Rs13.66 trillion

Equity funds in the Mar-22 quarter saw net inflows of Rs50,363cr, higher than the Dec-21 inflow of Rs41,912cr by 20.16%. What were the big contributors to this flow? Not a single category of equity funds witnessed negative flows in Mar-22 quarter as a combination of SIPs and NFOs kept the interest robust in equity funds. Incidentally, this is the second straight quarter that this is happening as even in the Dec-21 quarter there were no equity fund categories with negative flows.

The positive contributors to equity funds were a lot more affirmative. Flexi-Cap funds + Multi-Cap funds saw positive flows of Rs20,121cr largely on the back of NFOs. In addition, there were positive flows into large cap funds Rs7,281cr, large & mid cap funds Rs6,923cr, focused funds Rs6,079cr, mid cap funds Rs5,918cr, sector funds Rs5,821cr, small cap funds Rs4,624cr and ELSS funds Rs4,579cr. Among other categories of equity funds smaller net inflows were visible in contra funds and also in dividend yield funds.

The total AUM of equity funds at the end of the Mar-22 quarter stood at Rs13.66 trillion increasing its share by 100 bps over Dec-21 quarter to 36.35%. The AUM share of equity funds has gone up sharply by 650 basis points over previous year and for the first time we are getting to see the share of active equity funds more than that of debt funds. The positive gap would be much bigger if we include equity hybrids and passive equity funds.

How hybrid fund flows panned out in Mar-22 quarter?

Flows into Hybrid Funds in the Mar-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Mar-22
Rs52,014cr	Rs46,211cr	Rs5,803cr	Rs4.80 trillion

In Mar-22 quarter, hybrid funds could not sustain the excitement of the Sep-21 and the Dec-21 quarter, but still did extremely well in terms of inflows. The BAF mania tapered and that is impacting hybrid fund flows. In terms of break-up, Balanced Advantage Funds (BAF) still dominated Mar-22 quarter with inflows of Rs6,600cr followed by equity aggressive hybrid funds at Rs3,606cr, conservative hybrids Rs1,029cr and multi asset funds Rs593cr. However, Arbitrage Funds saw net outflows of Rs6,178cr in Mar-22 quarter for the second quarter in succession. Total AUM of all hybrid funds at the end of Mar-22 quarter stood at Rs4.80 trillion, growing its AUM market share by 31 bps to 12.78% of total mutual fund AUM.

How passive fund flows panned out in Mar-22 quarter?

Flows into Passive Funds in the Mar-22 quarter (AMFI)
Funds Mobilized	Redemptions	Net Flow	Net AUM as of Mar-22
Rs75,470cr	Rs30,683cr	Rs44,787cr	Rs5.22 trillion

Passive funds had another fantastic quarter with net inflow of Rs44,787cr, a smart increase over the Dec-21 quarter net inflows. There was traction across passive categories. Index Funds/ETFs Rs22,975cr and ETFs Rs21,706cr saw big passive inflows. International FOFs saw small inflows while gold funds saw small outflows, almost neutralizing each other. Passive funds now contribute 13.89% of total MF AUM; 147 basis points higher than Dec-21 quarter.

What really stands out in the Dec-21 quarter flows is that, apart from traditional equity fund flows; hybrids and passive funds are fast emerging as viable alternatives for investors. These 2 alternate classes account for 26.67% of total AUM, which makes them a significant asset class. Of course, debt funds continue to lose market share in overall AUM and have now dropped below active equity funds in AUM share. Even as debt funds are in a state of flux, the Mar-22 quarter belonged to active and passive equity funds.