Surge in NFOs boost equity fund flows in Dec-21

The story of equity flows in the month of Dec-21 was a story of NFOs. The NFO collections in Dec-21 at Rs20,616cr was more than the combined flows in the previous 3 months. However, the NFO flows in December was below the record flows of July. In the last 6 months since Jul-21, NFO flows were in excess of Rs80,000cr, largely driven by multi-cap, flexi-cap and BAF themes.

The overall AUM in Dec-21 was higher at Rs37.73 trillion on a closing AUM basis. While debt funds saw heavy outflows due to year-end treasury considerations, the flows into traditional equity funds doubled while the net inflows into passives remained extremely robust. Here is a quick look at the AUM-cum-NFO chart as of Dec-21.

The AUM net outflow for Dec-21 stood at Rs(4,350)cr overall due to the heavy selling in debt funds and other treasury products. The AUM mix as on 31-Dec was Income Funds (37.24%), equity funds (35.35%), hybrid funds (12.47%) and passive & solution funds (13.30%). The residual 1.65% were close-ended funds, where AUM was almost flat. This gap of 189 bps between equity fund AUM and debt fund AUM is the lowest in history. Overall AUM grew 21.63% yoy from Rs31.02 trillion to Rs37.73 trillion. In Dec-21, the share of hybrid funds has remained static but equity funds and passive funds gained AUM market share at the expense of debt funds.

Debt funds see heavy outflows in Dec-21

Debt funds overall saw outflows of Rs49,154cr, largely on account of treasury selling. This is the time, most of the quarterly pay-outs for GST and advance tax are done for which the treasury holdings are drawn down. The month of Dec-21 saw overall outflows across all the major categories of debt funds, except the overnight funds and the dynamic bond funds, which saw inflows of Rs4,731cr and Rs1,039 respectively.
There were a large number of debt fund categories that saw outflows in Dec-21 and that was largely along expected lines. Among the specific debt fund categories, Liquid Funds saw outflows of Rs8,698cr, ultra-short duration funds saw outflows of Rs8,348cr, low duration funds saw outflows of Rs11,067 crore, money market funds saw outflows of Rs7,029cr and floater funds saw outflows of Rs6,460cr.

Among other categories, Banking &PSU funds saw outflows of Rs6,219cr, corporate bond funds Rs4,306cr and short duration funds Rs2,093cr. It was not just at the short end, but even at the long end, there were concerns that the rising bond yields in the economy on account of higher inflation and Fed hawkishness could impact returns on debt.

Equity Fund inflows double in Dec-21 boosted by NFO support

Net inflows into equity funds more than doubled month-on-month to Rs25,077cr in Dec-21. Like in November, not a single category of equity funds saw outflows in Dec-21.

Let us turn to the inflows into equity funds in Dec-21. The inflows were across the board. Multi-cap funds plus flex-cap funds led the way with inflows of Rs12,925cr, largely supported by NFOs from Axis, HDFC and IDFC. Among other key categories, Sector Funds saw inflows of Rs3,770cr, Large Cap funds Rs1,548cr, large & mid-cap funds Rs1,635cr, mid-cap funds Rs1,679cr, focused funds Rs1,549cr and small cap funds Rs1,053cr. Other inflows were smaller. Equity funds saw cumulative net inflows of Rs110,458cr in the 10 months since Mar-21, representing 10 consecutive months of equity fund inflows.

Hybrid funds quiet, but passive funds surge in Dec-21

Net flows into hybrid funds was tepid at Rs551 crore. The balanced advantage funds, that had driven the NFO frenzy, were still in action raising Rs.3,793cr in Dec-21, largely driven by secondary inflows. However, this was more than offset by outflows of Rs4,304cr from arbitrage funds as all treasury related funds came under pressure. Other hybrid categories saw net inflows, but were relatively much smaller.
The legendary John Bogle of Vanguard had once said that investors should stop searching for the needle in the haystack and focus on the haystack instead. He was referring to index funds and it looks like Indian investors are taking Bogle seriously. In Dec-21 the passive category saw inflows of Rs18,703cr. Index funds saw smart inflows of Rs4,504cr while Debt and other ETFs saw inflows of a hefty Rs13,551cr. The other passive categories of gold ETFs and FOFs also attracted positive flows of Rs313cr and Rs334cr respectively. The hybrid, passive and solution funds, put together, account for 25.77% of overall AUM.

SIPs above Rs11,000cr for 2 months in a row

In Sep-21 the magic mark was finally crossed with net SIP flows of Rs10,351cr. That trend has been accentuated in Oct-19 with Rs10,519cr and Nov-21 with Rs11,005cr. For Dec-21 SIP flows stood at Rs11,305cr. SIPs are representative of the long term commitment of mutual fund investors and is normally seen as the ticket to long term wealth creation.

In the last 2 months, SIPs have surged despite volatile markets. That manifests an encouraging reality that people are divorcing their long term financial goals from short term market volatility. That is surely a good note to end the year 2021.