Equity fund inflows touch 23-month high in February 2024

11 Mar 2024 , 09:27 AM

Mutual fund flow and AUM story – February 2024

If the month of January 2024 saw robust mutual fund inflows of ₹1.23 Trillion, then February flows were almost at par at ₹1.18 Trillion, despite lesser number of days. For the month of February 2024, Debt funds alone accounted for 53.91% of the total fund inflows in the month of February. Among other categories, equity funds accounted for 22.7% of the net inflows, hybrids for 15.45% of net inflows and passive funds 8.24%. Closed ended funds actually saw net outflows in the month of February 2024; albeit marginal. As of the close of February, the net AUM stood at ₹54.54 Trillion or nearly $660 Billion in dollar terms.

While debt flows tend to be cyclical, the gradual build-up in the equity fund flow narrative is actually interesting. At ₹26,866 Crore, the net inflows into equity funds stood at 23-month high. These equity fund flows were substantially driven by a surge in the SIP flows and NFO flows. Gross SIP flows in February 2024 added up to ₹19,186 Crore. While these are the gross SIP numbers, the net flows also continued to be robust and was a big driver of active equity fund flows. Moreover, NFOs collected ₹11,720 Crore in February 2024 with 74% of the NFO flows coming from equity funds. Within equity funds, thematic fund dominated the narrative, largely driven by the SBI Energy Opportunities Fund NFO in the month.

What we must know about the untapped MF opportunity

While it feels good to pat ourselves on the back for such robust flows, the picture still leaves a huge gap if you consider the potential. Consider these numbers. In India, there are currently, 17.42 Crore mutual fund folios. Out of these, just about 4.2 Crore pertain to unique investors as mapped by the PAN. That does not compare too well with the 35 Crore life insurance policies in India or the 65 Crore bank accounts or the 110 Crore mobile phone connections. Clearly, there is still a long way to go.

That is where momentum plays a big role. If you look at the comparable situation in the US, it took a long time to touch AUM of $1 Trillion. However, the movement from $1 Trillion to $5 Trillion happened in less than 10 years. Today, India’s AUM at $660 Billion is close to what the US had about 35 years back as mutual fund AUM. If the mutual funds can play this momentum with appropriate products, more choice and sharper communication, the mutual fund customer base can be expanded exponentially.

Kings of the One Trillion Club

Let us turn to our monthly update on the Trillion Rupee Club. The Trillion rupee club is a group of fund categories with over ₹100,000 Crore in AUM. Out of the 39 categories of open-ended funds, there are 19 open ended fund categories with AUM of over ₹1 Trillion. Let us start with debt funds first. Out of the 16 active debt schemes, only 4 categories are in the Trillion rupee club. This includes liquid funds, money market funds, short duration funds and corporate bond funds. Interestingly, corporate bond funds have been getting positive flows in recent months. It is also the only long term fund category in this list.

What about active equity funds? A total of 10 out of the 11 equity funds had AUMs in excess of ₹1 Trillion with only dividend yield funds having an AUM of under ₹1 Trillion. In fact, 7 out of 10 of the equity fund categories viz., large cap funds, large & mid-cap funds, mid cap funds, small cap funds, sectoral/thematic fund, ELSS Funds, and flexi-cap funds are already in the ₹2 Trillion club; and out of them, flexi cap funds and Large Cap Funds are in the ₹3 Trillion dollar club. Active equity funds accounted for most of the AUM accretion.

What about the hybrid and passive funds? Out of the 8 funds in the hybrids / solutions category, there are 3 funds in the ₹1 Trillion club with Dynamic Asset Allocation Funds (BAFs) already in the ₹2 Trillion club. In the passive funds category, 2 out of the 4 fund categories viz., index funds and index ETFs are already in that category. Overall, it is the index ETF category, that has the highest AUM at ₹6.44 Trillion, followed by liquid funds at ₹5.17 Trillion and flexi cap funds at ₹3.44 Trillion.

Debt Fund flows dominate with 54% of overall flows

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

Month	Debt Fund Flows (₹ Crore)	Equity Fund Flows (₹ Crore)	Hybrid Fund Flows (₹ Crore)	Passive Fund Flows (₹ Crore)	Total MF Flows (₹ Crore)
Feb-23	(13,815)	15,686	630	6,488	9,575
Mar-23	(56,884)	20,534	(12,148)	26,804	(19,264)
Apr-23	106,677	6,480	3,511	6,945	121,435
May-23	45,959	3,240	6,193	4,487	57,420
Jun-23	(14,136)	8,638	4,611	2,057	(2,022)
Jul-23	61,440	7,626	12,541	860	82,046
Aug-23	(25,873)	20,245	17,273	4,535	16,181
Sep-23	(101,512)	14,091	18,650	4,720	(66,192)
Oct-23	42,634	19,957	10,250	7,746	80,529
Nov-23	(4,707)	15,536	13,723	2,234	25,616
Dec-23	(75,560)	16,997	15,229	573	(40,685)
Jan-24	76,469	21,781	20,885	3,983	1,23,205
Feb-24	63,809	26,866	18,288	9,756	1,18,351

Data Source: AMFI

Here are some quick takeaways. Debt funds did an encore of January with positive net inflows in February too. Debt funds, especially the funds with shorter tenure, tend to be volatile as corporates and institutions park surpluses in these funds and withdraw for quarterly payments of advance taxes. That is why we see huge outflows quarterly. Net inflows were robust across equity funds and hybrid funds also, although it must be said that passive fund flows have stagnated in recent months. After all, when alpha is so enticingly available; why would investors really go for index beta?

How overall AUM mix evolved in February 2024?

February 2024 saw another surge in overall AUM; from ₹52.74 Trillion to ₹54.54 Trillion on a MOM basis. This marks the highest ever closing AUM for mutual funds in India. Since the start of FY24, AUM of mutual funds is up 38.36%, largely due to the frenetic rally in equities, but also supported by positive flows into select categories of mutual funds.

Month	Debt AUM (₹ Trillion)	Equity AUM (₹ Trillion)	Alternate AUM (₹ Trillion)	Total AUM (₹ Trillion)
Feb-23	12.30	15.02	11.83	39.46
Mar-23	11.82	15.17	12.09	39.42
Apr-23	12.99	15.85	12.47	41.62
May-23	13.49	16.57	12.85	43.20
Jun-23	13.48	17.43	13.22	44.39
Jul-23	14.17	18.25	13.69	46.38
Aug-23	14.00	18.60	13.74	46.64
Sep-23	13.05	19.08	14.17	46.58
Oct-23	13.54	18.79	14.10	46.72
Nov-23	13.58	20.33	14.87	49.05
Dec-23	12.91	21.79	15.78	50.78
Jan-24	13.77	22.50	16.17	52.74
Feb-24	14.50	23.12	16.62	54.54

Data Source AMFI

For February, the debt fund AUM bounced to ₹14.50 Trillion compared to ₹13.77 Trillion at the close of January. Debt fund AUM is up 5.3% over January; 12.32% over December 2023 and up 17.89% on yoy basis. For February 2024, the equity fund AUM surged to ₹23.12 Trillion compared to ₹22.50 Trillion at the close of last month; suggesting a yoy growth in AUM of 53.93%. with the Nifty and Sensex at lifetime highs, the stock rally has helped the AUM spike, much more than the flows. Alternate assets saw AUM grow by 40.49% yoy, largely driven by hybrid funds in FY24. Here is the AUM share of different fund categories.

Month	Active Debt Funds	Active Equity Funds	Hybrid Funds	Passive Funds	Solution Funds	Close-ended Funds
Nov-23	27.68%	41.46%	12.72%	16.78%	0.82%	0.55%
Dec-23	25.42%	42.92%	13.03%	17.21%	0.84%	0.58%
Jan-24	26.10%	42.67%	13.09%	16.75%	0.82%	0.56%
Feb-24	26.58%	42.40%	13.02%	16.65%	0.80%	0.54%

If you take a 4 month perspective (February 2024 over November 2023), share of active equity fund AUM and the share of hybrid fund AUM has gained smartly at the cost of active debt funds and passive fund AUM share. However, if you look at February 2024 over January 2024; the AUM share of debt funds has actually gained 48 bps at the cost of the AUM of active equity fund share and passive funds. The AUM share of hybrid funds, solution funds and closed-ended funds have been neutral to modestly weak over last month.

Active Debt funds: Repeating the January magic

Debt funds saw net inflows of ₹63,803 Crore in February 2024, continuing the January 2024 optimism. The inflows were substantially broad-based, although concentrated at the short end; corporate bond funds being an exception. Liquid funds saw net inflows of ₹83,642 Crore, corporate bond funds ₹3,029 Crore, short duration funds ₹2,346 Crore, long duration funds ₹631 Crore, and Gilt funds ₹540 Crore. Other positive flows were too small.

Among the debt fund categories that saw net outflows in February 2024 were Overnight funds ₹17,375 Crore, low duration funds ₹4,100 Crore, and floater funds ₹3,610 Crore; all seeing pressure despite the intensity of inflows. Other categories of debt funds that saw selling to a lesser extent included banking & PSU funds, credit risk funds, and medium duration funds. Most debt fund categories are feeling the pressure of the taxation effect.

Active Equity Funds: sets 23-month flow record in February 2024

For the month of January 2024, all categories of equity funds, other than Focused funds, saw positive flows. Total inflows into equity funds at ₹26,866 Crore; the best since March 2022. Sectoral / Thematic funds dominated inflows at ₹11,263 Crore; but this was largely on account of the SBI Energy Opportunities Fund NFO. The other fund categories that saw net inflows in February 2024 include; flexi cap/ multi-cap funds ₹5,207 Crore, large & mid-cap funds ₹3,157 Crore, small cap funds ₹2,922 Crore, value / contra funds ₹1,867 Crore, and mid-cap funds ₹1,808 Crore. Other inflows into equity funds were not too significant.

Hybrid flows robust; passive flows picking up

The combination of hybrid funds and solution funds got net inflows of ₹18,288 Crore and is emerging as a key flow driver. However, just 2 fund categories dominated total hybrid flows in February 2024. In the star hybrid category, net inflows into arbitrage funds stood at ₹11,508 Crores and multi-asset allocation funds saw inflows of ₹4,043 Crore. In addition, equity savings funds saw net inflows of ₹1,344 Crore and dynamic asset allocation funds (BAFs) saw inflows of ₹1,287 Crore in February 2024. While arbitrage funds may be chipping away at liquid funds; the latest liquid fund flows numbers show that the arbitrage fund attractiveness for treasury may be saturating. We could see more money flowing back out of arbitrage funds into liquid funds. Multi asset allocation funds, BAFs and equity savings funds appear to be more of a bet on the asset allocation approach to mutual fund investing.

Passive funds had a relatively strong month in February 2024 with net inflows at ₹9,756 Crore; sharply better than the last few months. This was driven by inflows of ₹6,462 Crore into index ETFs, ₹2,536 Crore into index funds, and ₹997 Crore into gold funds Global fund of funds (FOF), actually witnessed net outflows in the month. Passive flows have slowed in the recent months due to easy alpha pickings. However, with the regulatory coming down heavily on small and mid-cap funds; the action is likely to shift back to the large-caps and the passive index funds and index ETFs. That change was visible in February 2024 itself.

What we read from the February 2024 AMFI MF narrative

Broadly, there are 3 insights that are emerging from the mutual fund flows data for February 2024. Firstly, the debt funds continue to see most of the action in the short end of the yield curve and markets are, perhaps, waiting for clarity on the direction of interest rates. Secondly, on equity funds, there has been a slowdown in flows into mid-cap and small cap funds even as there has been a shift towards thematic funds and large & mid-cap funds. Finally, at higher levels of the Nifty and Sensex, we could see reduced exposure to arbitrage funds as well as interest re-building in passive funds. One thing is certain; FY24 is going to be a stellar year for mutual fund flows and AUM.