September 2022 quarter belonged to passive MF flows

However, debt funds and hybrid funds saw negative flows in the quarter. In the March 2022 and June 2022 quarters, while debt flows were negative, the hybrid fund flows were moderately positive.

However, in the September 2022 quarter, heavy selling in arbitrage funds led to hybrid funds also showing negative flows. September 2022 marks the fourth consecutive quarter that debt fund flows have been negative, reflecting the pressure of higher bond yields and central bank hawkishness. While equity fund flows were positive, the quarter belonged to passive fund flows.

As of the close of September 2022 quarter, net AUM of Indian mutual funds stood at Rs38.42 trillion, a gain of +7.8% over June 2022 quarter. Although flows into equity funds and passive funds were positive in the September quarter, these gains were amplified by the Nifty and Sensex bouncing sharply from lower levels. The equity fund AUM accretion in September quarter was a combination of net inflows and market value accretion.

However, the crux of the September 2022 quarterly flow story was built around passive flows. As active fund managers struggled to beat the market, the amalgam of index returns and low costs became a salivating proposition for investors. Here is the story of mutual fund flows in the September 2022 quarter and how flows into specific categories panned out.

How debt fund flows panned out in September 2022 quarter?

September 2022 quarter marked the fourth consecutive quarter of net outflows from active debt funds. The net outflows from debt funds in the quarter at Rs11,278 crore was relatively lower compared to outflows of Rs70,213 crore in June 2022 quarter, Rs118,010 crore in March 2022 quarter and Rs21,610 crore in December 2021 quarter. Let us look at the key inflow components.

Only overnight funds saw substantial positive inflows of Rs36,642 crore while ultra-short duration funds saw positive inflows in the quarter of Rs1,647 crore. Other categories like medium and long duration funds as well as gilt funds saw net inflows in the quarter, but they were not too significant.

The September 2022 quarter story of debt fund flows was again about broad-based redemptions. Liquid Funds saw outflows of (Rs17,567 crore), Banking & PSU Funds (Rs8,415 crore), Floater funds (Rs8,085 crore), Low Duration Funds (Rs5,341 crore), Corporate Bond Funds (Rs4,835 crore) and Money Market Funds (Rs2,665 crore). Other redemption candidates like credit risk funds and 10-year Gilt Funds were relatively smaller in overall size.

Total AUM of all debt funds at the close of the September 2022 quarter stood at Rs12.42 trillion with its overall share of MF AUM lower by 231 basis points compared to June 2022 quarter at 32.32%. In the latest quarter there has been a perceptible fall in the share of debt funds in overall AUM due to the rally in equity markets since July and investors continuing to sell out of debt funds amidst the risk of rising bond yields.

How equity fund flows panned out in September 2022 quarter?

Net inflows into equity funds in the September 2022 quarter stood at Rs29,118 crore. While September 2022 marked the fourth quarter of net inflows into equity funds, the quantum is much smaller. In earlier quarters, the June 2022 quarter saw net inflows of Rs49,918 crore into equities, Rs50,363 crore in the March quarter and Rs41,912 crore in the December 2021 quarter. Interestingly, not a single category of equity funds witnessed negative flows.

NFOs returned to mutual funds market in the quarter with total NFO collections of Rs17,805 crore in the quarter. These NFO flows were largely dominated by the passive funds and sectoral funds. In addition the consistent flow of SIPs at above Rs12,000 crore per month, kept the equity fund inflows buoyant. September 2022 also marked the fourth consecutive quarter when there was positive flows across all categories of active equity funds.

The positive contributors to equity funds were a lot more affirmative. Flexi-Cap funds + Multi-Cap funds saw positive flows of Rs7,524 crore. In addition, there were positive flows into mid cap funds at Rs4,875 crore, small cap funds Rs4,865 crore, large & mid-cap funds at Rs3,620 crore, sector funds Rs3,367 crore, focused funds Rs1,857 crore, large cap funds Rs1,409 crore and contra funds Rs1,301 crore. In the remaining categories, the flows were still positive but much smaller.

The total AUM of active equity funds at the end of the September 2022 quarter stood at Rs14.86 trillion increasing its share by 202 basis points over June 2022 quarter to 38.10%. The AUM share of equity funds has risen due to a mix of positive flows from SIPs and new fund offerings (NFO) as well as value accretion due to the Nifty and the Sensex moving sharply higher in the quarter, from the lows of June 2022.
 
How hybrid fund flows panned out in September 2022 quarter?

In September 2022 quarter, hybrid fund saw net outflows of Rs14,436 crore against net inflows of Rs10,084 crore in the June 2022 quarter. The bulk of the selling happened in the arbitrage funds (classified as hybrid funds), but a treasury product akin to liquid funds. However, net flows into hybrid funds could have been more honourable if NFOs had picked up in the quarter. Normally, the Balanced Advantage Funds (BAF) NFOs are the most sought after in the NFO category and that was missing in action.
In terms of category inflows, Aggressive Hybrid Fund saw net inflows of Rs2,192 crore in the September quarter followed by Balance Advantage Funds (BAF) with inflows of Rs1,930 crore. Conservative hybrid funds and multi asset allocation funds saw smaller inflows while equity savings funds saw net outflows. Arbitrage Funds saw net outflows of Rs18,978 crore in September 2022 quarter, on account of treasury considerations. Total AUM of all hybrid funds at the end of September 2022 quarter stood at Rs4.82 trillion. The share has fallen by 67 bps to 12.54% of total mutual fund AUM as of September 2022.

How passive fund flows panned out in September 2022 quarter?

Passive funds had another fantastic September 2022 quarter with net inflow of Rs42,963 crore; at par with the robust March and June 2022 quarters. Index Funds/ETFs saw inflows of Rs16,885 crore and other ETFs Rs25,859 crore. Gold funds saw smaller outflows of Rs165 crore while FOFs saw inflows of Rs383 crore. Passive funds now contribute 15.58% of total MF AUM; 96 basis points higher than June 2022 quarter.

Here is the big story from the MF flows data for September 2022 quarter. Investors are thinking beyond traditional active equity and active debt funds. If you add up the hybrid funds, solution oriented funds and the passive funds, these have a combined AUM share of 28.93%. Apart from active equities and active debt, these have emerged as the third big asset class for investors.