Biggest mutual fund AUM growth stories of last 4 years

18 Apr 2024 , 11:48 AM

WHY THE FOCUS ON BIG STORIES OF LAST 4 YEARS?

As fiscal year FY24 comes to an end, it is time to look back at how the mutual funds have grown over the last few years. We will consider the bottom of COVID 2020 as the base and, considering that the COVID bottom was hit on March 20, 2020, this marks the completion of 4 full years since the conclusion of the pandemic.  There have been scores of reports in the recent past that the post-COVID period was decisive for the growth of the mutual funds in India. To a largely extent, that is already evident in the way the number of folios have grown and the way SIPs have become the core of retail investment portfolios. After the COVID shock of 2020, people are increasingly realizing the importance of being invested in equities for the long term. That is not just an India trend, but a global trend. But have mutual funds grown since pandemic purely due to the market appreciation or is it due to fresh flows too? In reality,  it is a mix of both, as we shall see from the granular break-up of AUM growth.

MACRO STORY – HOW OVERALL AUM GREW SINCE THE PANDEMIC

Let us start with the macro picture. We have only looked at open ended funds, since closed ended funds now constitute less than 0.35% of the AUM. Here is a picture of how the net AUM has evolved overall over the last 4 years along with the CAGR growth in 4 years.

All Open Ended Funds	AUM Mar-24	AUM Mar-23	AUM Mar-22	AUM Mar-21	AUM Mar-20	CAGR
Open-Ended Funds AUM Total	53,12,736	39,07,838	36,95,800	29,96,553	20,50,734	26.87%

Data Source: AMFI (AUM figures are ₹ in Crore)

What are the quick takeaways from the overall AUM numbers? Obviously, this is a very macro picture of open ended funds and may only tell you so much. However, 26.87% growth in AUM across the board is phenomenal in the 4 years post the pandemic. Remember, this CAGR growth in this period, so effectively over the last 4 years, the overall AUM of mutual funds in India has grown 2.59 times. This has been supported by a mix of stock market index appreciation as well as robust inflows via SIPs and NFOs in the Indian markets. The story becomes a lot clearer when we look ag the category-wise picture.

ACTIVE DEBT FUNDS – STORY OF CAGR GROWTH SINCE COVID-19

Here is a picture of how the net AUM of active debt / income funds have evolved overall over the last 4 years along with the CAGR growth in this period.

Active Debt Funds	AUM Mar-24	AUM Mar-23	AUM Mar-22	AUM Mar-21	AUM Mar-20	CAGR
Long Duration Fund	12,769	8,798	2,523	2,578	1,670	66.30%
Gilt Funds (10-Year-Duration)	4,742	3,760	1,261	1,500	941	49.81%
Gilt Fund	27,268	21,458	15,222	16,246	9,285	30.91%
Money Market Fund	1,48,893	1,08,468	1,14,219	89,758	57,017	27.12%
Corporate Bond Fund	1,47,361	1,30,767	1,30,073	1,60,125	81,730	15.88%
Dynamic Bond Fund	31,617	29,287	25,312	27,552	18,116	14.94%
Floater Fund	51,469	52,989	80,632	65,436	32,490	12.19%
Ultra Short Duration Fund	83,561	79,123	87,948	91,998	72,226	3.71%
Banking and PSU Fund	80,891	80,517	93,383	1,19,559	72,476	2.78%
Low Duration Fund	90,212	86,693	1,12,745	1,29,767	81,371	2.61%
Liquid Fund	3,63,510	3,32,498	3,45,903	3,36,598	3,34,725	2.08%
Medium to Long Duration Fund	10,497	8,895	10,055	10,390	9,805	1.72%
Short Duration Fund	99,004	91,239	1,15,856	1,45,662	93,444	1.46%
Medium Duration Fund	25,976	27,091	32,983	31,740	28,290	-2.11%
Overnight Fund	61,314	95,626	1,03,071	71,009	80,174	-6.49%
Credit Risk Fund	23,141	24,776	27,772	28,308	55,381	-19.60%
Active Debt Funds AUM Total	12,62,224	11,81,982	12,98,961	13,28,226	10,29,142	5.24%

Data Source: AMFI (AUM figures are ₹ in Crore)

The CAGR growth of debt / income funds since the pandemic has been just about 5.24%. That is very tepid growth. However, that is not surprising considering that with the sharp fall in rates, most of the funds automatically gravitated towards equities. Here are some of the key takeaways on the debt fund growth over the last 4 years.

• Out of the 16 fund categories in the active debt fund category, 13 have shown positive CAGR growth in the last 5 years while only 3 have shown negative CAGR growth, or a sustained compression in AUM.
• Credit risk funds saw net AUMs more than halving in the 4 years post COVID, which is not surprising as it also coincided with the fiasco of Templeton Mutual Fund, which had to call a freeze on some of its high risk debt funds to prevent a run of investors. The other fund categories that also saw sustained compression in AUMs were overnight funds and medium duration funds. This could be due to asset quality concerns in many of such funds where there has been substantial fund manager discretion in allocation.
• The debt fund categories that saw meaningful CAGR growth in the last 4 years include long duration funds, gilt funds with 10 year maturity, and gilt funds. While this can be attributed to bets on falling rates, these funds saw AUM growth on a small base. The more interesting AUM growth was in the corporate bond funds AUM, which grew at a CAGR of 15.88%, as debt fund investors bargained for higher returns.

Debt funds have not had the greatest of phases, but some of them did buck the trend.

ACTIVE EQUITY FUNDS – THE BIG GROWTH STORY POST-COVID

Here is a picture of how the net AUM of active equity funds have evolved overall over the last 4 years along with the CAGR growth in this period.

Active Equity Funds	AUM Mar-24	AUM Mar-23	AUM Mar-22	AUM Mar-21	AUM Mar-20	CAGR
Multi Cap Fund	1,24,682	67,338	54,932	19,891	12,685	77.06%
Dividend Yield Fund	23,915	13,994	9,819	6,735	3,282	64.30%
Small Cap Fund	2,43,368	1,33,384	1,06,857	69,799	35,832	61.44%
Sectoral/Thematic Funds	2,97,358	1,72,819	1,48,830	98,080	49,844	56.28%
Large & Mid Cap Fund	2,05,737	1,27,842	1,10,143	76,428	42,972	47.92%
Mid Cap Fund	2,96,986	1,83,256	1,59,928	1,16,403	65,805	45.75%
Value Fund/Contra Fund	1,49,099	90,584	78,774	61,150	39,460	39.42%
Flexi Cap Fund	3,50,186	2,41,683	2,25,430	1,58,725	1,01,223	36.38%
Focused Fund	1,29,704	98,673	96,710	68,603	39,072	34.98%
ELSS	2,13,760	1,51,751	1,47,841	1,25,228	74,791	30.02%
Large Cap Fund	3,14,155	2,35,760	2,26,191	1,78,324	1,13,541	28.97%
Active Equity Funds AUM Total	23,48,949	15,17,082	13,65,456	9,79,367	5,78,508	41.95%

Data Source: AMFI (AUM figures are ₹ in Crore)

The CAGR growth in equity fund AUM over the last 4 years has been an impressive 41.95%, which is a mix of flows and capital appreciation post the pandemic. Equity funds AUM as of March 2024 is 4.06 times the AUM as of March 2020. There is one small clarification here. The separation of multi-cap funds and flexi-cap funds only happened in FY21. To make them comparable, we have applied the same distribution ratio to split the overall corpus between multi-cap funds and flexi-cap funds for March 2020. Here are some of the key takeaways.

• At a macro level, all the 11 categories of active equity funds saw smart growth with the lowest CAGR growth being 28.97%. In most cases, the difference in growth has been less about capital appreciation and more about flows, so the leaders are the ones where equity fund flows have gravitated in the last 4 years.
• In terms of CAGR gainers, multi-cap funds have picked up tremendous traction in last one year and that has come at the cost of flexi-cap funds. Investors have preferred funds that offer less discretion to the fund manager, especially when it comes to asset allocation funds. But, the big shift is towards is alpha hunting with small cap funds, thematic funds, and mid-cap funds cornering most of the flows in last 4 years. Dividend yield fund may be in exception, but that is more due to a low base.
• In terms of laggards, ELSS fund appear to have lost momentum after the introduction of the new tax regime. Large cap fund, with their high cost structures, are gradually losing their mojo to the passive funds. We will look at that dichotomy more specifically when we look at passive funds.

Overall, the equity fund story has been the story of the post pandemic period. Investors have gravitated towards equity in a big way, and SIPs have been the vehicle of choice.

HYBRID FUNDS – A SURPRISING WINNER POST THE PANDEMIC

Here is a picture of how the net AUM of hybrid funds have evolved over the last 4 years along with the CAGR growth in this period. Hybrids are combinations of asset classes.

Hybrid Funds	AUM Mar-24	AUM Mar-23	AUM Mar-22	AUM Mar-21	AUM Mar-20	CAGR
Multi Asset Allocation Fund	67,280	26,591	19,582	14,795	9,439	63.39%
Dynamic Asset Allocation/BAF	2,48,798	1,91,810	1,78,863	1,07,883	77,091	34.03%
Retirement Fund	25,280	17,993	16,406	13,569	8,507	31.29%
Arbitrage Fund	1,53,009	67,435	95,217	74,530	52,210	30.84%
Childrens Fund	18,967	14,340	13,131	10,808	7,192	27.43%
Equity Savings Fund	29,567	16,012	16,664	9,759	11,229	27.39%
Conservative Hybrid Fund	26,871	23,170	21,074	12,916	11,190	24.49%
Balanced Hybrid Fund	1,97,197	1,53,899	1,48,519	1,23,075	1,00,990	18.21%
Hybrid Funds AUM Total	7,66,969	5,11,250	5,09,455	3,67,334	2,77,849	28.90%

Data Source: AMFI (AUM figures are ₹ in Crore)

At a macro level, the AUM of hybrid funds have grown at an impressive 28.90% over the last 4 years, with all the 8 categories of hybrid / solution funds showing positive CAGR growth. The AUM of hybrid funds as of March 2024 is 2.76 times the AUM as of March 2020. It has been a surprising gainer post pandemic, and we shall look at the specific reasons. For starters, we have included solution funds also under the category of hybrid funds, due to the similarity of their structure and strategy. Here are some of the key takeaways.

• All the 8 categories of hybrid / solution funds saw positive growth in AUM in the last 4 years with the lowest AUM growth being an impressive 18.21% CAGR over the last 4 years. In hybrid funds, the core stories have been asset allocation and fund manager discretion that have driven the growth in the last 4 years.
• The best growth came from multi-asst allocation funds and BAFs. While both these categories got a boost from NFOs, they also gained from investors gravitating towards asset allocation funds to get a better pan-asset class diversification. Arbitrage funds have grown at an impressive 30.84% CAGR in last 4 years, but that is more due to HNI treasury money gravitating from liquid funds to arbitrage funds. After all, apart from the favourable tax treatment, arbitrage fund returns also gained from market volatility.
• Interestingly, the laggards were the traditional hybrid funds like the conservative allocation funds and the balanced allocation funds. Investors are looking at active asset allocation from fund managers, which his why the categories like BAFs, multi asset allocation funds and equity savings have seen good traction. Investors are happy if fund managers can give a return booster while also reducing their overall risk.

Hybrid funds emerged as a smart alternative from an asset allocation perspective. Apart from equity and debt, allocation funds have emerged as a strong class of alternate funds.

PASSIVE FUNDS – THE REAL WINNER POST PANDEMIC

Here is a picture of how the net AUM of hybrid funds have evolved over the last 4 years along with the CAGR growth in this period. Hybrids are combinations of asset classes.

Passive Funds	AUM Mar-24	AUM Mar-23	AUM Mar-22	AUM Mar-21	AUM Mar-20	CAGR
Index Funds	2,13,657	1,67,517	68,676	19,164	8,089	126.70%
FOF Overseas	25,713	22,991	22,609	12,408	2,734	75.12%
Other ETFs	6,64,000	4,84,277	4,11,362	2,75,931	1,46,463	45.92%
GOLD ETF	31,224	22,737	19,281	14,123	7,949	40.78%
Passive Funds AUM Total	9,34,595	6,97,522	5,21,928	3,21,626	1,65,235	54.22%

Data Source: AMFI (AUM figures are ₹ in Crore)

As a fund category, the passive funds showed 54.22% CAGR growth in AUM post the pandemic. What has supported the rapid growth in index funds and index ETFs. As fund managers faced the twin challenges of volatility and kurtosis, investors realized that passive funds offered a delectable alternative. After all, when the Sensex has given 17% TRI returns over the last 45 years on a CAGR basis, it is tough to go wrong on any of the frontline indices. Add to it, there is the sharply lower cost, that itself works as a return compounder over a longer time frame. Not surprisingly, it is the passive funds that have emerged as the undisputed star in terms of asset growth post the pandemic!