Key mutual fund trends observed in May 2024

18 Jun 2024 , 09:17 AM

MUTUAL FUND STORY IN MAY 2024

The month of May 2024 saw the overall mutual fund AUM rise to ₹58.91 Trillion, compared to ₹57.26 Trillion as of the close of April 2024. That was led by sustained inflows into debt funds; but more importantly, equity funds saw record monthly inflows of ₹34,697 Crore in the month, with able support from the hybrid funds and also the passive funds. As of the close of May 2024, the average assets under management (AAUM) stood at ₹58.60 Trillion. SIP flows in May 2024 touched a record ₹20,904 Crore. This is the second consecutive month that the mutual fund monthly gross SIP flows had crossed ₹20,000 crore. The month of May 2024 also saw about 49.74 lakh fresh SIP accounts being added, although this is sharply lower than in April and the SIP stoppage ration also surged to a record high in May 2024. NFO (new fund offering) flows were relatively strong at ₹10,140 Crore, dominated by HDFC Manufacturing Fund, which alone raised ₹9,563 Crore.

While these are the actual numbers pertaining to mutual funds in India, there is a much more incisive story in the underlying trends. The numbers are prima facie flattering, if you ignore the SIP stoppage ratio of over 80% in May 2024. We now cull insights from the AMFI monthly review report, which outlines an analysis of diverse areas like mix of investors, retail spread, retail intensity, ageing of investors etc. The report for May 2024 throws some interesting stories about the growth of mutual funds in India. These stories pertain to overall AUM of mutual funds, the mix and colour of AUM accretion and the nature of investors. In addition, AMFI also provides value-added analytics like ageing of equity fund investments and average holding period.

KEY TRENDS IN MUTUAL FUNDS – SEGMENT LEVEL (MAY 2024)

Mutual fund segment level trends for May 2024 are confined to a macro level and have more to do with the colour and direction of the flows into specific fund classes.

• Average assets under management (AAUM) of all mutual fund schemes combined, touched a life-time high of ₹58.60 Trillion as of the close of May 2024, higher than the AAUM of ₹ 57.01 Crore as of April 2024, ₹55.01 Trillion as of March 2024, ₹54.52 Trillion as of February 2024, and ₹52.89 Trillion as of the close of January 2024. That translates into dollar AUM of $702 Billion. In May 2024, the average AUM and the closing AUM were both sharply higher over April 2024. In May 2024, the accretion in equity AUM was triggered partially by index accretion and largely by flows across equity funds, debt funds, hybrid funds and passive funds. In the case of debt funds, the AUM accretion can be largely attributed to the surge of flows into funds at the short end of the yield curve like liquid funds and money market funds. In the case of equity funds, hybrid funds, and passive funds; the growth in AAUM was a mix of flows and index accretion. On a yoy basis, the mutual fund AAUM as of May 2024 has grown by a healthy 36.44% compared to May 2023. The bull rally of last one year also contributed to this accretion in AAUM, despite debt fund flows being volatile.
• In the last couple of years, we have seen a gradual shift in the overall AUM mix from active debt to active equity. In May 2024, active equity funds gained AUM share while the share of passive funds, active debt funds and liquid funds was lower. This can be attributed to the sharp inflows into liquid and money market funds in April, but largely being outshone by the double whammy in equity funds. The net results was that, active equity fund share in May 2024 surged by 50 bps from 58.1% to 58.6% over April 2024 while the share of active equity funds in overall AUM is 730 bps higher on yoy basis.
• Passive fund share was down 10 bps from 12.8% to 12.7% in May 2024 while it is down 30 bps on yoy basis. Here, one must remember that passive funds include index-based equity products and also index-based debt products. Active debt funds share was down by 20 bps from 15.9% to 15.7% in May 2024 over April 2024 while it is down 460 bps on yoy basis. Finally, let us turn to liquid / money market funds. The share was down 30 bps at 12.9% in May 2024 compared to April 2024, while it is down 250 bps on yoy basis.
• The share of debt fund AUM was not only hit by higher returns on equity funds in last couple of years, but also the massive redemption of debt funds at least once every quarter. There is a reason for this trend. Debt funds in India are predominantly treasury funds where corporates and institutions park cash surpluses to meet future commitments like salaries, advance tax payment, GST etc. That is why you normally find a rush to redeem these liquid and money market funds each quarter when the advance tax liability for companies comes up. However, much of these outflows also come out in the subsequent months. However, the interest rate uncertainty of the RBI and the lack of innovative debt products in India have also restrained the growth of debt funds.
• Are individual investors playing a bigger role in mutual fund AUM compared to institutions? You can, perhaps, agree intuitively, but the data also backs it up. One reason could be that the SIP flows, coming largely from the Gen-Z and millennial investors into mutual funds are making all the difference. Another factor could be that the reduced interest in debt funds is making investors to naturally gravitate towards equities in search of higher returns. In May 2024, gross SIP flows were at a record high of ₹20,904 Crore; a fine barometer of retail equity fund flow intensity. Between May 2023 and May 2024, the share of individual investors in the overall AUM composition has gone up by 290 basis points from 57.7% to 60.6%. Even, on MOM basis, the share of individuals in mutual fund AUM is up 10 bps at 60.6%; which is despite strong institutional debt flows in May 2024. On a similar vein, the share of institutions and corporates in the overall mutual fund AUM has fallen over the last one year from 42.3% to 39.4%. In December 2023, the share of retail crossed 60%; and has sustained since.
• How much have individual investors allocated to each of the various categories of mutual funds like debt, equity, liquids, and ETFs? As of May 2024, individual investors have a share of a mere 38% in debt oriented schemes and 12% in short term money market schemes. These are treasury products with institutional appetite, so it is understandable. However, individual investors have an imposing 88% share of equity fund assets. Surprisingly, individuals have just about 11% of passive fund AUM (index funds and ETFs). This could also be attributed to the large share of debt index ETFs.
• Let us turn to the individual investor allocation basket; meaning how much of their corpus they have allocated to various asset classes. As of May 2024, individual investors have 85% of their mutual fund asset portfolio in equity schemes and 10% in active debt funds. Liquid funds at 3% and ETFs at 2% are fairly small. Institutional investors and corporates have 29% of their corpus in liquid funds, 29% in ETFs / FOFs, 25% in longer active debt funds and 17% in active equity funds. This trend is the same as April 2024.

As of the close of May 2024, overall assets of mutual funds in India have grown by 36.44% yoy. Assets of individual investors in this period grew by 43.48% while the growth in assets of institutional investors stood at a subdued 26.86%.

KEY TRENDS IN MUTUAL FUNDS – FOLIOS AND TICKET SIZES (MAY 2024)

Folios are investor accounts unique to an AMC. Folios do not represent unique investors, but are a good barometer of retail intensity.

• There were total of 18.60 Crore folios as of the close of May 2024 of which retail investors accounted for nearly 91.4% of the total folios. In addition, HNIs accounted for 8.0% of the folios while institutions accounted for the balance 0.6% of the total folios. These ratios have also been static over last few months, although the retail share marginally increased in the latest month. However, retail share of folios comes down sharply when we look at active debt funds. Here, retail investors account for just 68.7% of the folios, while HNI investors account for 29.0% of the folios. HNIs also have a high share of folios of liquid funds (19.6%) and hybrid funds (23.8%). The hybrid category is meant for the savvy HNI investors looking at asset allocation strategies.
• Here is a longer term perspective. Between March 2009 and September 2014, the number of mutual fund folios contracted from 4.76 Crore to 3.95 Crore due to persistent outflows from equity funds. However, between September 2014 and May 2024, the number of mutual fund folios have jumped sharply from 3.95 Crore to 18.60 Crore. That is a jump of 370.89% in folios since the year 2014. The financialization of savings becomes apparent when you consider that folios grew at a CAGR (compounded annual growth rate) of 17.28% since Sep-2014.
• There are two takeaways on folios and retail holding period. Firstly, average ticket size is sharply up at ₹3.01 Lakhs from ₹2.76 Lakhs last year. The average ticket size for equity oriented funds at ₹1.91 Lakhs is up 24% yoy, while for debt oriented funds it is ₹16.02 Lakhs, up 10% yoy. The average account size of the retail investors has also gone up from ₹0.72 Lakhs last year to ₹0.84 Lakhs this year, which is partially due to accretion.
• The general presumption is that retail investors tend to be less patient about investments. However, the average folio holding tenure contradicts this theory. Retail investors do not adopt a myopic approach to equity funds, as is popularly believed. As per data for May 2024, retail investors hold 53.3% of equity fund assets for more than 2 years (up 25 bps from last year). This is sharply up from 43.7% in 2022. Interestingly, while 53.3% of the equity assets have been held for more than 24 months, the share of patient investing is much higher at 58.9% in the case of retail investors.

The surge in the individual investor share is linked to SIP flows and NFO flows, while the stickiness has to do with the tough lessons learnt post the pandemic. The pandemic also underlined that it makes sense to stick with SIPs, irrespective of short term hiccups.

KEY TRENDS IN MUTUAL FUNDS – GEOGRAPHICAL MIX (MAY 2024)

How are cities and towns contributing to the mutual fund growth story?

• The mutual fund market is divided into T30 (top-30) cities and B30 (cities beyond top-30). If you compare May 2024 with April 2024, total T30 assets are higher by 2.68% at ₹48.11 Trillion. Total assets of B30 centres increased by 3.23% to ₹10.49 Trillion in May 2024. The trend is ambiguous since most of the AUM accretion for both categories came from index appreciation, but folios are growing faster in B-30 cities. It was only in April 2024 that the B-30 AUM crossed ₹10 trillion for the first time.
• SEBI banned entry loads in 2009 and introduced Direct schemes in 2013. However, while 43% of the overall assets came through the Direct route, only 23% of the retail investors money came through the Direct route. HNIs are slightly better at 27%. Clearly, retail investors are not making the best of the facility of direct investing available to them.

In the last few months, the AMFI monthly trend report has shown a shift of retail assets from beta assets to alpha assets as markets scaled new highs. Broadly, the trend still shows a thumbs-up for equities as an asset class by retail investors.