In this post, we analyse the flows in India’s mutual funds industry in the month of June 2024.
Equity and Hybrid schemes
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.
Debt (Fixed Income) schemes
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
