In this post, we analyse the assets and the flows in India’s mutual fund industry in the month of September 2024.
Total Assets Under Management (AUM):
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.
Equity and Hybrid schemes
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 The tendency to sell past performance will take some time to become outdated.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 (Fixed income) schemes:
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.
