Equity fund flows robust in March 2023 as SIPs touch new record

14 Apr 2023 , 04:05 PM

The equity flows were largely dominated by the Rs3,496 crore inflow into the SBI Dividend Yield Fund NFO. However, flows into active debt funds stayed in the negative while hybrid flows were once again strained. The redeeming feature of the month, obviously, was the surge of flows into passive funds, which we shall look at later. The month of March 2023 saw SIP inflows touching an all-time record of Rs14,276 crore. Also, new fund offerings (NFOs) were robust in March 2023 collecting Rs8,496 crore across 43 NFOs.

What triggered mutual fund flows in March 2023?

Here is a quick look at how the monthly flows across fund categories panned out for the last 13 months. Solutions funds have been merged into hybrid funds.

Month	Debt Fund  Flows (Rs crore)	Equity Fund  Flows (Rs crore)	Hybrid Fund  Flows (Rs crore)	Passive Fund  Flows (Rs crore)	Total MF Flows (Rs crore)
Mar-22	(114,824)	28,464	(3,463)	19,405	(69,883)
Apr-22	54,757	15,890	7,352	15,888	72,847
May-22	(32,722)	18,529	5,293	12,229	(7,533)
Jun-22	(92,248)	15,498	(2,142)	13,110	(69,853)
Jul-22	4,930	8,898	(5,035)	14,271	23,605
Aug-22	49,164	6,120	(6,509)	15,069	65,077
Sep-22	(65,372)	14,100	(2,475)	13,623	(41,404)
Oct-22	(2,818)	9,390	(2,647)	10,261	14,047
Nov-22	3,669	2,258	(6,385)	10,394	13,264
Dec-22	(21,947)	7,303	2,418	15,398	4,491
Jan-23	(10,316)	12,547	4,681	3,955	11,373
Feb-23	(13,815)	15,686	630	6,488	9,575
Mar-23	(56,884)	20,534	(12,148)	26,804	(19,264)

Data Source: AMFI

Here are some quick takeaways. Debt funds saw net outflows in 9 out of the last 13 months while hybrid funds saw net outflows in 8 out of the last 13 months. The underlying theme was treasury selling as hybrid fund selling was led by the arbitrage funds. Both, active equity funds and passive funds saw net inflows in all the 13 months till March 2023. Overall flows were negative in March 2023.

Let us spend a moment on the NFO flows in March 2023. The Rs8,496 crore NFO flows were led by two themes. The first was the Rs3,496 crore inflow into the SBI Dividend Yield Fund NFO. Now SBI Dividend Yield Fund accounts for 25% of the category AUM. The other big NFO category was closed-ended fixed term plans (FTPs). Rs3,878 crore was collected by 21 FTPs in March as funds made the best of the last opportunity to get LTCG tax benefits.

A sneak peak at the mix of overall AUM

Overall, AUM has been fluctuating in a narrow range and has gone up just 4.95% to Rs39.42 trillion in last one year. During the same period, the debt fund AUM has contracted from Rs12.99 trillion to Rs11.82 trillion, largely due to treasury outflows and concerns over rising rates. This was offset by expansion of AUM of equity funds and passive funds.

Month	Debt AUM  (Rs trillion)	Equity AUM  (Rs trillion)	Alternate AUM  (Rs trillion)	Total AUM  (Rs trillion)
Mar-22	12.99	13.65	10.31	37.57
Apr-22	13.56	13.66	10.42	38.04
May-22	13.22	13.32	10.40	37.22
Jun-22	12.34	12.86	10.20	35.64
Jul-22	12.46	14.16	10.88	37.75
Aug-22	13.03	14.78	11.26	39.34
Sep-22	12.42	14.63	11.12	38.42
Oct-22	12.45	15.22	11.58	39.50
Nov-22	12.57	15.58	11.93	40.38
Dec-22	12.42	15.25	11.92	39.89
Jan-23	12.38	15.06	11.87	39.62
Feb-23	12.30	15.02	11.83	39.46
Mar-23	11.82	15.17	12.09	39.42

Data Source AMFI

Active debt funds have borne the brunt of volatile rates and treasury pressures. Equity funds, on the other hand, have benefited from NFO and SIP flows, even as valuation support for them has been largely neutral in the last couple of years. But the real story is evident when we look at the AUM market share of various categories as of March 2023.

Active Debt Funds	Active Equity Funds	Hybrid  Funds	Passive Funds	Solution Funds	Close-ended Funds
29.98%	38.48%	12.15%	17.69%	0.82%	0.84%

One thing is evident that the AUM composition is shifting out of active debt into active equity and passive funds. Here passive funds refer to passive equity and passive debt funds. The alternative category comprising of hybrid funds, passive funds and solution funds have a higher composition in the overall AUM than active debt funds. This was inconceivable 2-3 years back. Why have investors plumped for passive funds? As Jack Bogle best summed it up, “Why look for a needle in a haystack, when you can buy the entire haystack?”

Active Debt funds: Treasury pressure persists

Debt fund saw net outflows of Rs56,884 crore in the month of March 2023. The last month of the fiscal year sees a lot of treasury outflows, so the outflows are not surprising. However, there were several longer dated debt fund categories that saw heavy inflows. For instance, Corporate Bond funds saw inflows of Rs15,626 crore, Banking & PSU funds Rs6,496 crore, dynamic bond funds Rs5,661 crore, long duration funds Rs4,675 crore, gilt funds Rs4,431croer and 10-Year Gilt funds Rs1,936 crore.  Much of this buying could be from HNI investors looking to lock into debt funds with favourable LTCG tax benefits before FY24.

Now for the sell side. Big selling was visible in Liquid funds at Rs56,294 crore, money market Funds Rs11,422 crore, ultra-short duration funds Rs10,281 crore, Overnight funds Rs8,138 crore, low duration funds Rs6,180 crore and floater funds Rs3,699 crore. While the selling on the treasury side was quite intense, HNIs were locking themselves into higher yields for a long duration with favourable LTCG benefits.

Active Equity Fund: Boost from NFOs and SIP flows 

Equity fund flows saw net inflows of Rs20,534 crore in March 2023. Once again, all the equity fund categories saw net inflows in March 2023. Sector funds saw inflows of Rs3,928 crore, dividend yield funds Rs3,716 crore, ELSS funds Rs2,686 crore, small cap funds Rs2,430 crore, mid-cap funds Rs2,129 crore and multi-cap / Flexi-cap funds Rs1,824 crore.

Most of the thrust to the equity fund flows came from SIP flows and a slew of NFOs during the month of March 2023. The NFO of the SBI Dividend Yield fund collected a record Rs3,496 crore and was a primary driver of NFO flows into equity funds. Small cap and mid-cap funds continued to attract bulk of the alpha-seeking flows. ELSS was a positive surprise, but considering it is March, it may just be a flash in the pan. SIP flows at Rs14,276 crore was also a major morale booster for equity fund flows.

Hybrid flows strained but passive flows shine

Overall, the combination of hybrid funds and solution funds got net outflows of Rs12,148 crore. Among the hybrid funds, the bulk of the selling was accounted for by the treasury operations. Arbitrage funds saw net outflows of Rs12,158 crore in March 2023 and accounted for almost the entire outflows from hybrid funds. Other hybrid funds that saw outflows were equity savings funds and Balanced Advantage Funds (BAFs). On the positive side, conservative hybrid funds and multi-asset allocation funds saw net inflows.

Passive funds again had another robust month in March 2023 with net inflows of Rs26,804 crore. This was driven by inflows of Rs27,228 crore into index funds in the month of March 2023. There was a lot of institutional demand for passive funds during the month. Other categories of passive funds like gold ETFs and index ETFs actually saw net outflows in March.

What is the gist of the mutual fund flows story for March 2023? Active debt funds continue to stay under pressure and the share of equity funds has touched an all-time high in overall AUM. But the big story is that alternate funds have an AUM that now parallels active debt funds. Clearly, the market is looking at ideas beyond plain vanilla equity and debt.