Category: Mutual Fund

As a CA and CFA with over 20 years of experience in the financial domain, I’ve observed a concerning trend among retail investors: a significant lack of participation in debt mutual funds and an overexposure to high-risk equity schemes. This imbalance in asset allocation can have long-term implications for their financial health. Let’s break it down.

In June 2024, we highlighted the lack of retail investor interest in debt mutual funds. Despite debt mutual funds accounting for nearly 25% of the mutual fund industry’s assets, retail investors continue to overlook these schemes. Here’s what the data as of December 31, 2024, reveals:

– Liquid Funds: Retail AUM is just 1.36%, while HNIs hold 13.81%.

– Corporate Bond Funds: Retail AUM is 1.54%, compared to 24.65% for HNIs.

– Banking & PSU Debt Funds: Retail AUM is 1.69%, while HNIs hold 31.44%.

Retail investors are missing out on higher returns (6.5%+ in liquid and low-duration funds) compared to the meagre 3.5% offered by savings bank accounts. Additionally, they seem to prefer fixed deposits and bonds over long-term debt schemes, sacrificing liquidity and diversification benefits.

On the other hand, retail investors are taking aggressive bets in equity schemes:

– Mid-Cap Funds: Retail AUM is 56.88%.

– Small-Cap Funds: Retail AUM is 64.13%.

While mid and small-cap funds can offer higher returns, they come with significantly higher risk. Retail investors hold disproportionately lower percentages in conservative schemes like hybrid funds (14.85%) and arbitrage funds (1.25%).

The data suggests that retail investors are not diversifying their portfolios adequately. Overexposure to high-risk equity schemes can lead to significant volatility, especially during market downturns. A well-balanced portfolio should include a mix of debt, equity, and hybrid funds, with aggressive equity exposure limited to 30-35% of the total equity allocation.

1. Financial Literacy: Retail investors need to understand the benefits of debt mutual funds, including higher returns, liquidity, and risk diversification.

2. Advisor Guidance: Distributors and wealth managers should encourage balanced asset allocation across all categories.

3. AMC Initiatives: Asset Management Companies could target retail investors with better pricing and education on regular plan TERs.

At EquiZen, we specialise in personalised financial solutions that prioritise safety and transparency. Our goal is to help you achieve financial freedom by making informed decisions. If you’re looking to optimise your portfolio, let’s connect.  Send us a mail on sanjay@equizen.in or call on 9820605203.

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The Indian mutual fund industry continued its remarkable growth trajectory in January 2025, with total  assets under management (AUM) reaching an all-time high of ₹67.25 lakh crore. This marks a 0.48%  increase from December 2024 and an impressive 27.52% growth year-on-year. Despite ongoing  market fluctuations, investors remain committed to mutual fund investments, ensuring steady inflows  across various fund categories. Let’s dive deeper into the key trends shaping India’s mutual fund  industry.

Equity mutual funds continued to attract significant investor interest in January, with net inflows of  ₹39,688 crore. This was the fourth-highest monthly inflow ever recorded, demonstrating investor  confidence in the long-term growth potential of Indian equities. However, due to market corrections,  the total AUM for equity-oriented funds declined by 3.6% to ₹29.47 lakh crore.  

Sectoral and Mid/Small-Cap Funds Dominate Inflows  

– Sectoral/thematic funds led the way, attracting the highest inflows within equity-oriented funds.  

– Mid-cap and small-cap funds saw their highest-ever monthly inflows, reinforcing the growing  investor appetite for these high-growth segments.  

– Large-cap and flexi-cap funds also saw strong inflows, ranking second-highest in their history.  

– New Fund Offerings (NFOs) continued to be a major driver, with small-cap NFOs raising ₹1,040  crore and sectoral/thematic NFOs mobilising ₹2,838 crore.  

Thematic/sectoral funds continue to attract the highest inflows amongst all equity schemes. Nov and  Jan have seen the inflows dip below Rs 10,000 crs whereas it was more than 13,000 crs in the three  months each ending Oct 2024. Thematic NFOs in Jan brought in 2838 crores.  

Market Impact: Equity AUM Faces Pressure  

Despite strong inflows, the equity AUM experienced a decline of 3.62% due to mark-to-market losses  as the benchmark indices, Nifty 50 and BSE Sensex, dropped by 0.45% and 0.78%, respectively.  Nonetheless, domestic institutional investors (DIIs) played a stabilising role by continuing their equity  purchases, mitigating the impact of foreign institutional outflows.

Debt mutual funds saw their AUM climb to an all-time high of ₹17.06 lakh crore, growing 8.9% on a  monthly basis. January also saw net inflows of ₹1.29 lakh crore into debt funds, reversing the  significant net outflows of ₹1.27 lakh crore seen in December 2024. As usual, the first month of the  new quarter saw monies that had gone out in the previous month come back again. The seven day exit load now levied by all mutual funds needs to be reviewed as it may not have worked in changing the  nature of quarterly inflows and outflows.

1. Liquid and Money Market Funds Lead Inflows  

 – Liquid funds recorded a staggering inflow of ₹91,593 crore, accounting for 71% of total debt fund  inflows.  

 – Money market funds also performed well, receiving ₹21,916 crore in inflows.  

2. Declining Bond Yields Attract Investors  

 – The yield on the 10-year government bond fell from 6.76% in December 2024 to 6.69% in January  2025, making fixed-income investments more attractive. Though, declining yields can lead to better  returns, funds which can take advantage of declining yields such as gilt funds with 10 year constant  duration, medium and long term duration funds, credit risk funds, etc have seen outflows. Either very  few people are expecting interest rates to decline else they are allocated to equity and hence not  looking at a kicker from debt funds.  

3. Short-Term Funds Dominate  

 – Overnight funds, liquid funds, and money market funds saw the highest month-on-month growth,  at 26.3%, 20.4%, and 10.2%, respectively.  

 – Investors preferred shorter-duration funds as they offered better liquidity and lower risk in a  volatile environment. 

Hybrid funds witnessed net inflows of ₹8,768 crore in January, more than doubling from ₹4,370 crore  in December 2024. While the category’s total AUM declined slightly by 0.14% to ₹8.75 lakh crore due  to market fluctuations, investor interest in hybrid strategies remained strong.  

 Arbitrage Funds Take the Lead  

– Arbitrage funds alone accounted for nearly half of hybrid fund inflows, attracting ₹4,292 crore in  January.  

– Their AUM grew by 2.16% month-on-month to cross ₹2 lakh crore. Arbitrage fund inflows turned  hugely positive as they were negative in three out of the last four months. Have investors booked  some profits or are they parking their lumps funds in Arbitrage to move to equities later?  

Multi-Asset Allocation Funds Surge 

– Multi-asset allocation funds have grown nearly fourfold over the past three years, reflecting  investors’ increasing preference for diversified portfolios. This is a good sign as these funds are  inherently less volatile as they have a mix of three asset classes mainly equity, debt and gold which 

have low positive correlation amongst them. Investors should move from debt to hybrid and then to  equity schemes. Multi asset funds are a great way to progress for cautious investors. In the same  breath, conservative hybrid funds have seen negative flows for the last three months. Are all the new  investors directly coming into equities?

Passive investment strategies continued their strong run, with inflows of ₹10,255 crore in January. This  marked the 51st consecutive month of positive inflows into passive funds.  

 Gold ETFs Hit Record Inflows  

– Gold ETFs saw their highest-ever monthly inflow of ₹3,751 crore as investors turned to safe-haven  assets amid market uncertainty.  

– The depreciating Indian rupee and global economic concerns contributed to heightened interest in  gold-backed instruments.  

 Index Funds Continue to Attract Investors  

– Index funds accounted for the largest inflows within the passive category, receiving ₹5,255 crore in  fresh investments.  

– The AUM of index funds grew to ₹2.76 lakh crore, reflecting increased adoption of low-cost, passive  investing strategies.

Systematic Investment Plans (SIPs) maintained their steady growth, with contributions reaching  ₹26,400 crore in January, up 40.14% from ₹18,838 crore a year ago. The total SIP AUM now stands at  ₹13.20 lakh crore, accounting for nearly 20% of the overall mutual fund industry assets.  

This growth underscores investors’ confidence in a disciplined, long-term approach to wealth creation,  even amid short-term market turbulence. Its good that the market volatility has not reduced SIP  inflows. SIP inflows probably stay for a longer term than lumps sum inflows.

January also saw a record increase in the number of mutual fund folios, with 41.96 lakh new accounts  added. The total folio count now stands at 22.92 crore, up 1.86% from December.  

– Equity-oriented folios led the expansion, contributing over 30.78 lakh new accounts.  – Passive funds accounted for 9.43 lakh new folios, driven by index and ETF investments. 

The sustained folio growth highlights increasing retail participation and a broader investor base in  India’s mutual fund ecosystem. As we had mentioned in our earlier blogs, there is hardly any new  folios being created in debt schemes. The entire debt mutual fund ecosystem is tailored towards  corporates and UHNIs.  

Outlook: Strong Flows Expected Despite Market Fluctuations  

The Indian mutual fund industry continues to show resilience and sustained growth. The steady rise in  AUM, robust SIP inflows, and increasing investor participation signal strong confidence in the market.  While short-term volatility may persist, long-term prospects remain bright, particularly for equity,  passive, and hybrid funds.  

 Key Takeaways:  

– Mutual fund AUM reached ₹67.25 lakh crore, growing 27.52% year-on-year.  

– Equity funds saw ₹39,688 crore in inflows, despite market corrections.  

– Debt fund AUM hit a record ₹17.06 lakh crore, benefiting from falling bond yields.  

– SIP contributions remained steady at ₹26,400 crore, highlighting retail investor confidence.  – Gold ETFs recorded their highest-ever inflows at ₹3,751 crore.  

As we move further into 2025, mutual funds continue to offer attractive investment opportunities,  reinforcing their role as a key pillar of wealth creation for Indian investors.  

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents  carefully before investing.

To navigate the vast array of funds: 

1. Start with Asset Allocation: Define equity, debt, and gold proportions. A typical mix: 60%  large-cap, 25% mid-cap, 15% small-cap. Given the recent run up and correction in mid and  small caps, we advise sticking to large caps till there is a higher correction in this part of the  market.  
2. Diversify Wisely: Limit to ~10 schemes across categories and not more than 1-2 schemes  across one category.  
3. Key Metrics: Analyze 3-5 year performance, volatility, portfolio turnover, and fund manager  consistency. 
4. Review Regularly: Annual or semi-annual reviews are essential. 

For simplicity, leverage mutual fund ratings by CRISIL, ICRA, etc., favouring 4-star schemes.

EquiZen, a registered mutual fund and PMS distributor, offers personalised financial solutions with a  focus on safety and transparency. We aim to assist you to achieve financial freedom, the freedom to do  what you want and achieve your dreams. We do not push financial products but believe utilising them  judiciously to meet your needs. Learn more at www.equizen.in or contact us via +91 9820605203 or sanjay@equizen.in.

In this post, we analyse the assets and flows in India’s mutual fund industry in the month of December 2024.

Total AUM of all schemes declined by 1.69% over November 2024 to Rs 66.93 lakh crores but was still an impressive 31.81% up over the December 2023 number. That number was 50.77 lakh crores. The AUM year on year growth last month was 38% and the downfall in the markets has dragged the growth rate down but is still quite a good number. Nifty 50 was down 2.02% in December. Its one year return is 10.09%. Mid caps and small caps were up 1% and 0.2% respectively in one month.

Debt assets ( or funds in debt schemes) were down 7% as overnight, liquid and money market funds saw significant net outflows. Equity assets were up 0.71% to 30.57 lakh crores. Hybrid assets were flat at Rs 8.76 lakh crores. Assets under management of mid cap and sectoral schemes was up by two odd percent. Sectoral schemes net inflows jumped twice over that in November 2024 mainly driven by NFOs.

Over the last ten years, the broader market (Nifty 500) has given a return of 19%. Out of twenty sectoral indices, only ten have given a return more than 19%. The highest return of 29% was given by realty index followed by metals at 27.27%. Surprisingly, financial services and banks were lagging the broader market at 10% only. PSU banks have outperformed at 22% whereas private banks were at 7.42 % only. The returns of the broader market are an average of the returns of all the sectors and their stocks. It’s quite hard to determine which sectors will do well. Even the FMCG sector has lagged though consumer durables has done well. Since the broader market is an average of all the sectors and stocks, its volatility will also be lower than that of the sectoral indices. Nifty 500 one year volatility is 15% and only Pharma, FMCG and healthcare had slightly lower volatility than 15%. The highest volatility was shown by PSU bank at 29% followed by media and realty. Investors are advised to consider the volatility of sector funds too while determining their asset allocations.

Gross and net inflows were up for both equity and hybrid schemes in December 2024 over the previous month. Gross flows into equity at 72,115 crores and net inflows at 41,115 crores were up by 17% and 14.5% respectively. Mid cap and small cap funds are seeing increase in both gross and net inflows though the outflows in mid caps seems to be increasing too. Does this explain the resilience of these indices in this month?

Sectoral funds AUM is now the largest in the equity category by a mile. It is at 4.72 lakh crores and will likely cross 5 lakh crores by March 31, 2025. It has become the single largest AUM category since liquid funds saw huge outflows in December. While liquid may come back in January, it is likely that the steady inflow into sectoral funds will make it the largest category of schemes in a short time barring other ETFs. These ETFs have many institutional investors and hence may keep growing too.

Are investors taking advantage of the dip in the markets to increase their exposure. Arbitrage funds have seen an outflow in the month. Long investors of course will benefit by investing at lower levels. The recent downturn in the markets over the last 3-4 months is also good for SIP and STP investors who get an opportunity to lower their average cost of investments and improve their long term returns. But those looking for short term high returns may face disappointments. We will have to wait and watch. The drivers of the markets in the short term will be quarterly results, the budget, the change of guard in the US, the US Fed and RBI monetary policy actions, etc.

Hybrid funds gross inflows (excluding arbitrage schemes) was Rs 13,279 crores which is around 20% of the gross inflows into equity schemes. Indian savers are still addicted to fixed income investments. They still love guaranteed returns and the higher the better. Instead of falling to scams, they will be better off investing in hybrid schemes. Those with a lower ability to stomach risk can look at conservative hybrid funds or multi asset allocation funds which have give decent low volatile returns over the years.

The mutual fund industry offers a total of 1666 schemes of which 1552 are open ended schemes and 114 are close ended schemes. There are 315 debt schemes, 481 equity schemes of which 190 are sectoral schemes. The number of hybrid schemes are 160 and the number of index funds and ETFs are 556. Given the change in taxation laws, the number of close ended schemes have dwindled else the total number of schemes would have been very high.

How does one navigate so many schemes? Also, given the plethora of schemes, it is natural to invest in many schemes and over-diversify your assets. Its best to start with your asset allocation. Determine your optimal allocation to equity, debt and gold. Thereafter, allocation assets to large, mid and small cap schemes. A good proportion would by 60-25-15. Allocation to debt could be across money market, gilt, corporate bond and medium duration schemes. Gold exposure can be taken via ETFs or FOFs investing in Gold ETFs. A number of 2 schemes in each of these categories should be sufficient. A total of ten schemes across all these asset classes should be a good number to target. Consider 3 & 5 year performance, standard deviation of these returns, portfolio turnover ratio and fund manager duration while selecting schemes. Review these parameters at least once a year if not twice. If you use the above criteria, you will most probably not consider New Fund offers. NFOs can be considered for allocation to new themes. In any case thematic allocation should not exceed ten percent of your equity allocation. Allocation to debt assets can cover investment in CDs, PPF, etc. Tax aspects should be considered while choosing all investment options.

If this sounds overwhelming, one can take the easy way out by looking at mutual fund scheme ratings issued by Crisil, ICRA and other such agencies. They do the rankings on a similar basis as discussed above. One can invest in four star rated schemes since we are not a fan of five star schemes since the only way for them is to go down.

EquiZen is a registered mutual fund and PMS distributor. Our team is highly qualified in investments and finance, offering tailored solutions to meet your dreams. We prioritise safety and transparency, ensuring that we recommend only investments we will invest ourselves. Visit [www.equizen.in](http://www.equizen.in) or contact us at +91 9820605203 via call or WhatsApp. You can also write to us at sanjay@equizen.in for a free consultation. Let’s secure your financial future together.

In this post, we analyse the assets and flows in India’s mutual fund industry in the month of November 2024.

Total AUM of all schemes was close to Rs 68.08 lakh crores as on November 30, 2024. It was just a tad up (1.23%) compared to October 2024 but was up 38% compared to twelve months ago. Markets were mainly flat for the month. Equity and Debt AUMs were both up by around a percentage helping in the growth of the month end AUM. Average AUM for the month was down 0.66% compared to last month. Average AUMs were down mainly due to lower equity AUMs. This may be due to volatility of the equity market indices during the month.

Why is average AUM being reported and how is it computed? Average AUM is the average of the daily AUMs of the schemes divided by the number of business days in the month. There was a time in the industry when debt AUM was larger than equity AUM. It was possible to get AUM on the last day of the month to show a higher number for reporting purposes. Accordingly, the industry decided to report Average AUM rather than just the month end AUM. Since the equity AUM has grown much larger now, this practice may not be required anymore. However, a practice once initiated isn’t easy to be changed or stopped.

Gross inflows into equity schemes were at Rs 61,697 crs in the month of November 2024 compared to Rs 74,727 crs in October 2024 and Rs 38,885 crs in November 2023. Compared to last year, its an impressive growth of 58.66%. But sectoral funds have shown the biggest increase in gross flows compared to last year. Net flows into equity schemes were 14% lower compared to last month but 131% higher than November 2023. They were at Rs 35,943 crs in November 2024.

What explains the dip in gross inflows compared to the previous month? Is it the volatility of the index and the fall from 86,000 to the current 81,000 odd. Are we still looking at monthly and half yearly and annual returns only rather than much longer periods? What will happen if the market consolidates for the next six months. Many NFOs are below their face value. Will (or have) these investors backed out from committing more funds to equity mutual funds?

Hybrid schemes too saw a dip in gross and net flows. We have always felt that Arbitrage funds are skewing the data for hybrid funds and should be shown separately. The gross inflows in these schemes was down 36% to Rs 29,279 crs. Net inflows were down 75%.

Fund of funds investing in overseas equities saw an increase in AUM of 3.5% even though net flows were negative as the US and Chinese markets have done well. Trump’s election victory has been good for developed markets but negative for emerging market equity indices.

Debt or Fixed income Assets under Management rose by 1.32% to 16,85,672 crores at the end of November 2024.

The AUM per folio of debt schemes is at 24.58 lakhs. The highest AUM per folio is 58 lakhs for money market funds. The average AUM per folio of equity schemes is Rs 1.96 lakhs and that of hybrid schemes is Rs 5.82 lakhs again skewed by Arbitrage schemes whose average is Rs 34.86 lakhs. This indicates that even arbitrage schemes are used by corporates to earn higher net of tax returns than debt schemes.

In November 2020, the AUM of Fixed Term Plans was Rs 1,18,458 crores. Five years later the AUM of these schemes has shrunk to Rs 15,676 crores. The change in taxation of debt scheme has killed this category of schemes. They were a great alternative to Fixed deposits as well as bonds and debentures. But they were also mainly a corporate and HNI product. A substitute in terms of open ended debt index funds did well too till the tax regime was beneficial. While the government has brought the tax regime on par with fixed deposits, wonder whether they have evaluated the impact on funding for corporates on the same. Corporates could raise debt funds by issuing papers to these schemes. This was a good way of raising funds for 2-3 years. A detailed evaluation of this aspect would be interesting to read.

In this post, we analyse the assets and the flows in India’s mutual fund industry in the month of September 2024.

Total AUM of all schemes was close to Rs 67.09 lakh crores as on September 30, 2024. It was just a tad up compared to August 2024 mainly due to outflows from debt schemes due to the end of the quarter. We should see the same being made up in the month of October. Total assets were up 44% compared to September 2023. Thematic funds AUM is at 467,000 crores and will likely be the second category to touch 5,00,000 crores of assets after liquid funds category. This should happen in the next 2-3 months as the assets grew at 5% compared to the previous month. Other ETFs are the largest category at 810,000 crores. However, that would include many index funds as well as some actively managed ETFs too.

Gross inflows in equity and hybrid schemes were flat compared to last month. Net inflows in equity schemes were up almost 1.5 times compared to that of last year. Hybrid schemes saw net outflows compared to last month mainly due to outflows from arbitrage funds. It’s time AMFI classified these schemes with debt funds so analysts do not have to make adjustments with pure hybrid funds. Four thematic NFOs collected Rs 7,842 crores. Thirteen index funds collected Rs 3,656 crores whereas four other ETFs collected Rs 102 crores only. The clear preference for thematic funds is obvious. The tendency to sell past performance will take some time to become outdated. Asset Management Companies are also making hay when the sun is shining by launching as many NFOs as possible.

Mutual fund advisors don’t earn trail fees from selling ETFs. ETFs will continue to be a product that is pushed by RIAs and favoured by HNIs and Family offices as well as those institutions looking at index exposures. As we had observed, the debt and ETF products will not be sold by advisors due to lower commissions. Only when equity funds become so big that commission rates go lower that advisors will become indifferent between debt and equity schemes at least from an income perspective and they will not be averse to becoming asset allocators to just selling performance.

Debt or Fixed income Assets under Management fell by 6.41% to 14,97,000 crores at the end of September 2024. Schemes which saw net outflows were overnight, liquid, ultra short term bond funds, money market funds, floater funds, Banking and PSU Bond funds and credit risk funds. With RBI changing its stance to neutral, will there be an increase in the assets of gilt funds? Currently, these funds are at a minuscule Rs 43,000 crores of assets. Gross flows into Gilt funds have already grown five times compared to last year. But the absolute number at Rs 3,400 crores is still very small compared to the more than Rs 1,00,000 crores that is the gross flows into equity funds. Gilt funds with 10 year constant duration which are likely to be the biggest beneficiary of any interest rate cuts saw an inflow of Rs 113 crores. Both these categories have also seen outflows. Clearly, they are not playing the duration game but are comparing their returns with equity schemes. Credit risk and Banking and PSU Bond funds should also be the beneficiaries of the interest rate cutting cycle. However, these funds have been seeing consistent outflows suggesting that duration based investing may not be happening at the moment.

In this post, we analyse the assets and the flows in India’s mutual fund industry in the month of August 2024.

Total AUM of all schemes was close to Rs 66.7 lakh crores as on August 31, 2024. As we had predicted last month, the AUM comfortably crossed the 65 lakh crores mark. It grew 2.6% over the previous month and more than 43% over last August 2023. That’s an impressive growth over a year. At a 3% growth rate, the AUM will cross 80 lakh crores by the end of this fiscal and cross Rs 10 billion crores in FY 26. Equity and Hybrid AUM have grown 62% and 53% over last year. Debt funds AUM grew by 14% as even Index funds AUM grew by 47%. We have always maintained that in a country which has large exposures to gold and fixed income as asset classes, the mutual fund industry has been unable to penetrate these two products with the investors. In this situation where equity indices are over valued, diversion of some funds into debt may have worked in the interest of investors.

Net sales in equity schemes was flat compared to the previous month. However, both gross sales and redemptions were lower than July 2024. Sales were down 8% but redemptions were down 22%. More than a third of the sales in equity schemes is in Sectoral schemes. Close to 50% of the net flows are in sectoral schemes. Focussed funds and ELSS funds are seeing net outflows.

Net inflows in hybrid schemes were down almost 43% mostly due to a 27% decline in gross inflows into arbitrage funds. Five sectoral funds raised Rs 10,200 crores whereas ten index funds raised 884 crores. This tells you the story of how retail has been left out of the index part of the industry.

There were two NFOs (one ETF and one mutual fund) of the Nifty 500 Multicap 50:25:25 index. This index will invest 50% in large cap shares and 25% each in mid cap and small cap shares. The weights of each of the sub-class of assets is based on their market capitalisation. Let us see how this index compares to the Nifty 500 index and the Nifty 500 Largemidsmall Equal cap Weighted Index. The Nifty multi cap index has given a return of 26.42% over the last five years compared to 22.73% for the Nifty 500 index. The Equal cap index has given a return of 28.47% over the last five years which not surprisingly is the highest amongst all the three Nifty 500 indices. This is so because the Nifty 500 index would have a lower exposure to mid and small caps and given their outperformance over the last few years, it is not surprising that the Nifty 500 Equal weighted index would have outperformed the Nifty 500 index and the 50:25:25 index. Those looking for lower risk should consider the Nifty 500 index while those with a longer term horizon and higher risk appetite should consider the Nifty 500 multi cap index. Those with an even higher risk appetite should look at the equal weighted index. One of these schemes should actually make up almost 50% of one’s equity exposure. The rest can be allotted to active investing especially in mid and small caps where the possibility of alpha still exists.

Net inflows in debt schemes was down 63% as it was the middle month of the quarter. We are almost at the end of September and we also had an advance tax date on the 15th, which will ensure that September will see net outflows from debt schemes mostly driven by institutional investors.

Gilt funds with 10 year constant duration only have Rs 4,500 crores of AUM. Other gilt funds have Rs 33,300 crores of AUM. Given that the Fed has already announced a 50 bps cut in interest rates and with inflation moderating in India, it may be time for RBI to start their rate cutting cycle. In such a scenario, debt funds which adopt a duration strategy can see a gain of 6 – 8% for every one percent cut in interest rates. However, these funds have not seen any major change in their AUM or flows over the last two months. The number of folios in these schemes is also negligible. There are five funds in the 10 year constant duration category. The folios in this category are 36,301 and the folios in the other gilt funds are 192,867 and they have an AUM of Rs 33,300 crores.

Those who have a debt exposure could consider investing in these schemes to take advantage of the increase in prices of these securities when interest rates move down.

In this post, we analyse the assets and the flows in India’s mutual funds industry in the month of July 2024.

Total AUM of all schemes was close to Rs 65 lakh crores. They would have crossed this number by now and we can be sure that the August month end numbers will cross the 65 lakh crs mark. This is a 6.23% growth over the previous month. Total AUM was Rs 46.37 lakh crs in July 2023. The jump of 40% is substantial. AUM of equity oriented schemes jumped by 61% over a year. These are the money making schemes for Asset Management Companies and the bottom-lines of these companies will see a huge increase in the current financial year. AUM of Hybrid schemes has also shown a very good growth of 53.45%. Most of this growth seems to have been driven by Arbitrage schemes. Their AUM increased from Rs 90,745 crs to 189,349 crs. Are all the profit booking flows invested here? Are people switching out from Equity to Arbitrage schemes or are they redeeming from equity schemes and investing in Arbitrage schemes? We need more data to determine the answers to these questions.

Are investors trying to time the markets? Will they get back in once the markets reach a reasonable level. How will they determine what level is reasonable? Are their advisors good enough to give them this advice? Should the advisors not be focussing more on ‘time in the market’ rather than ‘timing the market’?

Gross inflows in equity and hybrid schemes in the month of July were mostly unchanged compared to June 2024. Gross inflows have doubled over July 2023. Gross inflows in these schemes increased to Rs 127,000 crs from Rs 64,000 crs. Net inflows in July were ten percent more than in June. They were at Rs 54,500 crs. Net inflows in July were a whopping 272% more than last year. Last year net inflows were only Rs 20,000 crs. This is a very large increase and probably one of the reasons why markets are either stable or creeping up. Net inflows in mid cap and small cap funds are lower than last year. Old investors are booking profits. But new investors seem to be attracted by the good returns over the last few years.

Most of the gross inflows still come to sector schemes. There were two NFOs which garnered 9,790 crs of assets. Gross inflows in sector funds last year was Rs 6,192 crs which have increased to Rs 27,468 crs in July 2024. Net inflows have grown from Rs 1,429 crs to Rs 18,386 crs. That’s a massive jump. The second biggest category was multi cap schemes followed by Flexi cap schemes. Mid caps and small cap funds raked in Rs 7,000 crs each approximately.

Are investors investing in sector funds as also mid and small cap schemes based on their strategic asset allocations? Or are they just investing in these funds from a tactical perspective? Does it make sense to invest in the markets at these levels. Most market participants believe that there is value only in large caps. However, large cap schemes are seeing very less net inflows in July as well as in June this year and the story must be the same for the rest of the months. Last year, in fact, they saw net outflows. Are investors expecting the market to keep giving double digit returns over the next few years. Will they be disappointed if they see single digit returns and if that happens, will they stop investing or even worse redeem to chase that asset class which has given higher returns. And which asset class will that be that will be the next multi-bagger? Are AMCs doing the right thing by launching so many new schemes and garnering AUM in sector schemes? Are they being customer centric or only AUM and hence bottom line focussed? Do they consider the present value of a customer who invests with them for a life time vis a vis a customer who invests in the hope of quick and high returns and leaves after getting disappointed. Are advisors advising their clients that they may have to stay invested for much longer periods from now onwards compared to what they have seen in the past. Long term returns are around 20%. Markets may have to see a correction in order to revert to the mean and nobody knows whey that will happen, how deep will it be and for how long will it last.

There are 174 sector schemes. They have 2.47 cr folios out of the total 19.84 cr folios. They are followed by small cap schemes with 2.08 cr folios. ELSS, Flexi and mid cap funds have 1.5-1.6 cr folios. None of the hybrid schemes have more than 1 cr folios. The largest being Aggressive Hybrid funds with 55.1 lakh folios. Not surprisingly, Arbitrage funds have only 5.32 lakh folios confirming our theory that funds which have a low trail rate are not generally sold by distributors. With a relation in the rules for Registered Investment Advisors (RIA), their numbers will increase leading to an increase in these numbers. We have generally been getting our clients to invest in Arbitrage Funds to take advantage of the lower tax rate of 20% (from 15% earlier). We recommend an STP from Arbitrage funds into equity funds. This may help clients reduce their average cost of purchase in a volatile market. Ideally, we would have waited to start investing in equity. However, with such inflows, it does not seem that a large correction may happen soon. In any case, we only invest in equities if the client has a long enough time horizon else we look for safer investments for them.

Surprisingly, other ETFs have 1.22 cr folios and Rs 5.54 lakh crs assets. This is surprising. Does it mean that these ETFs are used for trading purposes rather than for long term investments? More data on the same can help answer this question.

Debt assets increased to Rs 15.95 lakh crs compared to Rs 14.55 lakh crs last year showing an increase of 9.6%. Money market funds have shown a good increase to rising to Rs 2.25

lakh crs from Rs 1.48 lakh crs. With interest rates supposedly at their peak, gilt funds have hardly shown any movement and have assets under management of Rs 37,000 odd crs.

The last month saw net outflows of 1.07 lakh crs and this month the money came rushing back in to the tune of Rs 1.19 lakh crs. Fifty eight percent of the net inflows was in liquid funds. But a lot of funds came into money market funds. This will likely be stable this month and again the story of outflows will be repeated in end September.

In this post, we analyse the flows in India’s mutual funds industry in the month of June 2024.

Our pet peeve refuses to go away. Sector/Thematic funds continue to garner more funds than any other equity mutual funds category. They collected Rs 30,708 crs in June compared to Rs 25,959 crs in the previous month. Nine sectoral NFOs garnered Rs 12,974 crs. These were quant funds, Manufacturing funds, Special opportunities funds, etc. Clearly, AMCs are making hay while the sun (funds inflow) is shining though rains have really picked up as I pen this. Hope the sun will keep shining on all these investors.

There were three Special Opportunities fund NFOs in the last month. First, we thought that these were Special Situations Funds. Special Situations funds invest in companies that are undergoing some merger or acquisition or a similar such situation due to which an opportunity is created to generate alpha. But what are special opportunities funds? Isn’t all buying supposed to be special opportunities or you might as well buy the index. Looks like Special situations and special opportunities aim to do the same thing ie generate alpha from companies that are facing a special situation. We are doing an analysis of these sector funds and will cover their risk and return characteristics in another blog.

Arbitrage funds saw a dip in net inflows. Maybe a portion of these funds were transferred to the NFOs. That would mean that investors are parking their funds in tax efficient schemes and investing in NFOs or other schemes.

Hybrid funds are quite a large category. However, their inflows are smaller compared to the mid cap and small cap schemes. This also makes you ponder that are schemes still being sold based on past performance. And if that is the case, when will it change?

Assets of Hybrid funds are a third of the assets of equity schemes but their net flows are only 20% of equity schemes. These may pick up at a later date.

Assets of other schemes crossed Rs 10,00,000 crores. These are mainly Index funds, Gold Exchange Traded Funds (ETFs), other ETFs and Funds investing in overseas equities. This is an important milestone. These assets are now almost 25% of active assets. And this is a good sign. These assets mainly belong to Institutions. Unfortunately, Index Funds and Debt Funds have majority of the assets from institutions who do not need an advisor. These will never be recommended by normal advisors who make peanuts on such funds. SEBI made these funds non-lucrative for advisors and distributors when they abolished different plans for different classes for investors. That was a nice way for investors to be offered these funds if they wanted them. In those times, there were retail plans in liquid funds whose expense ratio was probably 0.5 – 0.65% whereas institutional and super institutional plans had a higher minimum amount to invest but much lower expense ratios. Maybe its time to bring that regime back.

Its the end of the quarter and as mentioned in one of our earlier memos, net inflows into debt schemes turned negative. They dropped from + Rs 42,294 crs to – Rs 107,357 crs. Most of the debt schemes saw an outflow. But Liquid and Overnight funds saw the most outflows. All the outflows would have happened at the end of the quarter since the average AUM of debt schemes was Rs 15,18,838 crores during the month but dropped to Rs 14,13,232 crs at the end of the month. Most of the money market instruments mature during or near quarter ends to enable liquid funds to manage their liquidity. The most popular papers would be three months or less papers followed by two month papers. And there will be some trading in these papers by smaller funds who see an unexpectedly large inflow or outflow during the quarter.

Floater funds have seen outflows for the last two months. And rightly so as you should lock in the higher interest rates at this time and not get into floater funds.

The link to the AMFI report on June 2024 flows is below:
https://portal.amfiindia.com/spages/amjun2024repo.pdf

Sebi requested Asset Management Companies which manage mutual funds to disclose certain parameters related to liquidity, risk and turnover as well as client holdings every month for mid and small cap schemes. Reports are available for these schemes for the months from February to April 2024. We had recently analysed the parameters for mid cal schemes. Our observations on the parameters disclosed for small cap schemes are as under:

Small cap schemes need to have a minimum 65% exposure to small cap stocks. These stocks rank 251 to 500 in the list declared by AMFI every month. The largest small cap stock had a market capitalisation of Rs 22,127 crs on an average in the six months period ended December 31, 2023. The 500th stock in the list had a market cap of Rs 7,314 crs. The largest small cap fund is Nippon India Small Cap Fund with assets of Rs 50,413 crs in April 2024 and the smallest fund managed Rs 47 crs.

The Tata fund has the largest exposure to small companies at 93%. Four funds had an exposure of more than 87% to smaller companies. The fund with the least exposure at 64.9% is ITI Fund and ICICI Pru, Motilal Oswal and Quant had exposures to small caps less than 70%. The largest exposure to large cap stocks was of Quant at 26.95%. Nippon, Mahindra and ITI had large cap exposures of more than 10%. The largest amount of cash was with ICICI at 10.64% followed by Bandhan at 10.38%. There are funds will cash levels
less than 2%. One would expect AMCs to have less exposure to large caps and more to mid caps given that investors are looking for a high risk reward ratio.

ITI had the largest holdings of the top ten investors at 20% followed by Mahindra, Motilal and Bandana in the early tens. You will recall that having high concentration is not good but one must also consider the overall size of the fund. These funds are not too large and should be able to manage their liquidity.

HDFC will take the maximum number of days (54) to liquidate half its portfolio of Rs 29,600 crores whereas the largest Fund Nippon will take 31 days only. SBI will also take 48 days to liquidate half of its Rs 27,700 crs assets. Kotak with 14,800 crs of assets will also take 35 days which is higher than Nippon. If you are the type who will redeem then these numbers are important for you.

Quant has the highest standard deviation at 19.2% and the highest portfolio turnover ratio at 1.52 times. Motilal and bandana have single digit standard deviation and low turnovers too.

1. Choose funds which have high liquidity (ie those funds who can sell their portfolio in the lowest number of days)
2. Funds with less concentration of clients are better. We have seen with debt funds that the smartest investors are the first to redeem leaving the rest with all the ill-liquid assets.
3. Choose funds with low standard deviation and low portfolio turnover ratios. It’s a pity that Sharpe ratios are not disclosed here. But higher the Sharpe ratio, better is the fund.
4. Choose your fund carefully. Some of the funds are small and large cap funds and some are small and mid cap funds. If you already have a large cap exposure, choose funds with high small and mid cap exposures.

The link to the AMFI report on small cap schemes for April 2024 flows is below:

https://www.amfiindia.com/riskparameter

In this post, we analyse the flows in India’s mutual funds industry in the month of April 2024. A link to our analysis for the analysis of the flows in March 2024 is given below. A link to the April 2024 AMFI flows report is also appended below.

Gross inflows in equity and hybrid funds were mostly unchanged from April. An uptick was mainly seen in Arbitrage Funds. Net inflows into equity funds did see a fall from 22,000 crs to 18,900 crs. Small cap funds which saw higher redemptions in March 2024 saw lower redemptions in April leading to positive net inflows. Thematic funds continued to lead in the net inflows.

A thematic fund based on innovation garnered Rs 700 crs in its NFO in April 2024. An NFO for retirement solutions managed to collect Rs 40 crs. Clearly, people are more excited investing in Innovation than on their retirement. Six index funds collected Rs 269 crs. They were all launched by one AMC.

Sebi’s rule of creating fund categories, defining them tightly and allowing each AMC only one scheme in most categories has made life simpler for investors. Older AMCs can launch schemes only in the thematic and Index funds categories. These are also being driven by the new indices that are being created. The more the indices, the more the ability of the AMCs to launch new schemes.
Scheme categorisation has also allowed an easy comparison of the performance and risk characteristics of large cap funds, flexi cap funds, etc. It may still be a challenge for funds where the minimum investment is at a lower threshold say mid cap and small cap funds or even dynamic allocation funds as AMCs have the flexibility to invest the balance funds in all kinds of equity and even debt. Accordingly, the comparison of such schemes should be based on their asset allocation.

Flexi cap funds have the most assets followed by sectoral, large cap, mid cap and then small cap funds. Mid cap funds may become larger than large cap funds. Small cap funds are already larger than ELSS funds. This may prove that it is still past performance that is driving sales into these schemes. Investor should stick to their asset allocations and not chase returns.

The inflows and outflows into debt schemes are 10-12X of those into equity schemes. But nobody seems to notice the same. The liquid and overnight funds are second only to Other ETFs. They collected Rs 8,63,000 crores between them. They offer good returns and great flexibility and are a good substitute for those keeping more than Rs 25,000 in their bank accounts.

Money market funds can play an important role in your debt portfolio as the duration is low, liquidity is good and one can generate decent returns with great flexibility. These collected Rs 61,000 crs in April. We are certain that most of them must be from corporates and HNIs.

Conservative Hybrid Funds are also nice schemes for those who are ultra conservative but still crave for a double digit return. However, their flows and assets are abysmal.

Multi Asset Funds which have provided double digit returns with low volatility are also not very popular and fare a little better than CHFs in terms of assets.

The Industry could do well to promote these categories of funds.

The link to our our analysis of March 2024 inflows is below:
https://www.linkedin.com/feed/update/urn:li:activity:7188159761790496768/

The link to the AMFI report on April 2024 flows is below:
https://portal.amfiindia.com/spages/amapr2024repo.pdf

In this post, we analyse the flows in India’s mutual funds industry in the month of May 2024.

Gross inflows in equity funds grew in May compared to the previous month by . Hdfc Manufacturing fund collected Rs 9,563 crs. Even excluding the same, gross inflows in equity funds grew 11.45% percent over April 2024 and by a whopping 231% over May 2023. Net inflows were Rs 34,697 crs which were more than the gross inflows in May 2023. Thematic funds continue to get the maximum gross inflows. Focussed and ELSS schemes were the only two categories with negative inflows. Mid cap funds saw a surge in gross inflows this month.

There seems to be consistent profit booking in equity and hybrid schemes. Inflows in Arbitrage schemes grew a lot suggesting that investors are booking profits and moving into arbitrage schemes. Are they waiting for a correction to enter again? The power of compounding works over a long period of time. So investors should stay invested and not try to time the markets.

Assets in sectoral schemes were equivalent to flexi cap schemes in May 2023 but are now more than Rs 58,000 crs. Shows the popularity of these schemes in the last year or so. There will always be one particular sectoral theme that will be outperforming the market. The rest will be underperforming the market. It is difficult to determine the sector that will do well and hence a flexi cap scheme should provide consistent returns year on year as the fund manager has the flexibility to move between sectors as well as between large and other companies.

Gross inflows into index funds and ETFs have also doubled over the last one year. Will a correction happen with an almost Rs 50,000 net inflows from mutual funds into equity markets?

As expected, net inflows into debt schemes plummeted by 78% to Rs 42,294 crs. This was after the surge in net inflows in April. We are likely to see net outflows in the next month due to quarter end.

Banking and PSU Bond Funds are a good proxy for those investing in fixed deposits. They are superior to FDs are they provide diversification as well as liquidity compared to CDs. Investors can easily do Systematic Withdrawal Plans (SWP) from these funds to fund their monthly expenses. Unfortunately, these do not seem very popular as the assets of these funds are Rs 81,000 crs whereas fixed deposits with banks are more than 1,84,00,000 crs more than 227 times of a surrogate product. Distributors would do well to recommend Banking & PSU funds to customers looking at investing in fixed deposits.

The link to the AMFI report on May 2024 flows is below:
https://portal.amfiindia.com/spages/ammay2024repo.pdf

Sebi requested Asset Management Companies which manage mutual funds to disclose certain parameters related to liquidity, risk and turnover as well as client holdings every month for mid and small cap schemes. Reports are available for these schemes for the months from February to April 2024. Our observations on the parameters disclosed for mid cap schemes are as under:

The largest fund, Hdfc Mid Cap Opportunities Fund will take 26 days to liquidate 50% of its portfolio of Rs 63,409 crs. While Kotak Emerging Equity Fund with Rs 42,681 crs will take 27 days to liquidate 50% of its portfolio. The SBI Magnum Mid Cap Fund with Rs 17,915 crs will also take 25 days. Funds with Rs 10,000 crs of assets will take 5-7 days to liquidate 50% of their portfolio. DSP Mid Cap Fund with Rs 17,000 crs of assets will take 14 days for the same. HSBC and PGIM seem to be doing a better job here. Clearly, liquidity differs from fund to fund and choosing a fund with better liquidity should be one criterion for choosing a mid cap fund. So the smaller funds will fare better here and bigger the better may not work here.

Out of the 29 funds, only four funds have an exposure to mid cap companies which is more than 70%. Remember Sebi requires that these funds invest at least 65% in mid cap companies (companies which rank 101 to 250 in the list of largest companies based on market capitalisation. A list released by AMFI every January and July).

Hdfc is sitting on the most amount of cash at 8.4% followed by Motilal Oswal at 7%. So most are almost fully invested irrespective of all the talk of mid and small caps being overvalued. Nobody wants to miss out if the markets keep rising.

The balance funds can be invested in large or small caps and its interesting to note that Quant has the highest allocation to large cap at 25% and consequently one of the lowest allocation to small caps at 0.62%. There are five other funds with an allocation of close to 20% to large caps. The largest allocation to small caps is of JM with 30% followed by Taurus and then followed by Tata, White Oak and UTI.

Motilal Oswal has the highest allocation to large caps at 22% followed by JM at 14%. The rest are significantly below 5%.
The highest annualised standard deviation is 16.65 and almost all funds are in the range of 12-15% whereas Invesco is the lowest at 3.93%. Wonder what Invesco is doing unless there is a typo here.

Interestingly, almost all funds have a portfolio beta less than 1. P/E ratios of funds also show a huge range from 21.39 for HDFC and 57 for Bandhan’s fund.
Portfolio turnover ratios show an anomaly for Franklin Prima Fund which is at 23.4 whereas the rest are mostly in low single digits whereas some are less than zero too. We have highlighted the above to AMFI. We checked the Franklin Fact sheet and the number for Franklin seems correct which means the others have to be reported as a percentage and seem to have been reported as a decimal. Assuming that the decimals are actually percentages, Quant has the highest turnover at 3.2 followed by White Oak at 2.54 which suggests very high churn.

Further, JM and Motilal have the highest concentration in terms of customer holdings. The top ten customers are 22% of Motilal’s assets and 14% of JM’s assets. In case of a issue, it may be possible that the most liquid assets are used to pay off these customers first who invariably will probably will be the first to redeem in case of any signs of trouble.

So here’s how to use these data:

1. Choose funds which have high liquidity (ie those funds who can sell their portfolio in the lowest number of days)
2. Funds with less concentration of clients are better. We have seen with debt funds that the smartest investors are the first to redeem leaving the rest with all the ill-liquid assets.
3. Choose funds with low standard deviation and low portfolio turnover ratios. It’s a pity that Sharpe ratios are not disclosed here. But higher the Sharpe ratio, better is the fund.
4. Choose your fund carefully. Some of the funds are mid and small cap funds and some are mid and large cap funds. It would make sense to up the minimum to 80%.

The link to the AMFI report on mid cap schemes for April 2024 flows is below:
https://www.amfiindia.com/riskparameter

Debt mutual fund schemes continue to elude retail investors. Total inflows into debt mutual funds continue to be higher than equity inflows. Total inflows into debt mutual fund schemes in April 2022 was Rs 743,606 crores vis a vis Rs 73,437 crores in equity schemes including index and other ETFs. Of the 13 crore folios in open ended schemes, almost 94% are in equity schemes and only about 73 lakh folios are in debt schemes. The assets of Debt mutual fund schemes is Rs 13,91,308 crores which is 36% of the total assets in open ended schemes. Clearly, 36% of the assets of all open ended schemes are contributed by only 6% of the folios. No prizes for guessing that debt schemes are generally being bought by either institutional investors or by Ultra High Net worth Individuals or High Networth Individuals. Retail investors seem to be oblivious of these scheme categories which are a great way of getting exposure to diversified and liquid debt portfolios. The average value of a folio in debt schemes is Rs 19 lakhs whereas the same in equity schemes is Rs 1.6 lakhs and hybrid schemes is Rs 4 lakhs. Clearly, the retail investor is giving the entire debt category a miss.

The reasons for the same are not hard to fathom. The commissions earned by distributors on debt schemes will range from 0.1% for liquid schemes to 0.4/0.6% for long term debt schemes. Further, the returns are also volatile as NAV changes with changes in interest rates. Accordingly, it is easier to invest these funds in either fixed deposits with banks and NBFCs or in bonds and debentures. The prices of Fixed Deposits are not marked to market and hence there is no capital gains or losses. The bonds and debentures are marked to market. However, since investors may not look at their demat statements every day, these are unlikely to cause a flutter. The issue with Fixed Deposits is that they are not liquid and premature withdrawals are penalised by NBFCs. Firstly, the interest rate is reduced to the rate that was applicable to the period at the time of making the investment and a further penalty of around 2% is charged for withdrawal. This penalty is not leviable for mutual funds. There is an exit load which may be levied upto one year but there will be no load thereafter. Investors need to consider debt mutual funds schemes for the following benefits:

• Liquidity – Mutual funds provide instant money. Redemption applications made before 3 pm on an working day will provide funds before 10 am of the next working day;
• Lower tax rates – Taxes on long term capital gains (ie capital gains earned after holding the units for more than three years) is 20% after indexation. Accordingly, the tax rate will be much lower compared to an FD for customers whose annual taxable income is more than Rs 10 lakhs
• Diversification – Mutual fund schemes invest in debt papers of different companies in different industries. This assists in diversification of investments. As has been seen with investors of certain banks that faced RBI action, putting all your eggs in one basket is risky and it makes sense to invest in diversified debt schemes rather than chase high returns by investing everything in one issuer and ignoring risk;
• Review of investments: It is the fund manager’s role to keep track of the credit risk of their investments. They are likely to determine an imminent credit event far earlier than a common investor. Of course, given the inherent nature of our market it is possible that mutual fund schemes also end up with credit losses. However, it is likely that the entire portfolio may not get impacted due to such events.

Investors would do well to ensure that their emergency funds are all invested in liquid and ultra short term bond schemes. These are typically 6-8 months of their normal monthly expenses. Further, almost 50-60% of the total debt allocation should be invested in debt mutual fund schemes. Almost all the exposure that is meant for more than three years should be in debt mutual funds. Corporate bond schemes are an ideal investment vehicle for this purpose. Banking and PSU debt schemes will also be ideal for credit risk averse investors. These schemes take exposure to bank debt or those of PSUs, which are considered by investors as safer than private corporates. The average returns of these schemes over three years is 7.29 and that over five years is 7.11. These schemes manage assets of Rs 92,000 crores in April 2022, a miniscule amount compared to the amounts invested in Fixed Deposits which may be more than Rs 14,00,000 crores.

In March 2022, index funds in debt raised close to Rs 3,000 crs. In April, there were no issues of such funds. Clearly, HNIs are using these funds to improve their after tax returns by making use of indexation benefits and staying away from volatile equity markets. It remains to be seen that over a three year period, after markets have corrected by 15% from their peak, whether this will be considered as a smart move. Again, this data clearly shows that the retail investor is missing out on the debt schemes space altogether.

Gross inflows into equity funds fell from 46,400 crs to 32,600 crs. Contrary to popular belief, there is no fall in inflows. There was a large SBI multi cap NFO in March which garnered Rs 8,170 crs. If you take away this NFO, the inflows in March and April are quite similar. In April, ICICI had a thematic fund NFO which raised Rs 3,130 crs. This NFO bolstered the thematic fund inflows in April 2022. The AUM of thematic funds is amongst the highest amongst all categories of equity funds. Thankfully, balanced advantage funds is the only category that is larger than thematic funds. The size of thematic funds and the continued inflows into NFOs suggests that the distribution market in India is still to mature. Investors may do well to review their investments and stay away from NFOs unless the same are new in the market altogether and stick to medium sized schemes with a decent past record of performance. Further, thematic funds by their nature are likely to be more volatile than broadly diversified schemes. While thematic funds can be a part of large portfolios, their presence in portfolios of smaller investors should be a cause of worry. Distributors would do well to stick to diversified funds for their smaller clients.