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