In this post, we analyse the assets and the flows in India’s mutual fund industry in the month of August 2024.
Total Assets Under Management (AUM):
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.
Equity and Hybrid schemes
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.
Debt (Fixed income) schemes
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.
