The Indian mutual fund industry surpassed Rs 50 lakh crore in assets under management (AUM) in December. However, total inflows into the mutual fund industry fell by Rs 40,685 crore on the back of advance tax payments, regular redemptions from debt funds, and higher equity valuations. Net flows into debt funds were at Rs 75,556 crore, while equity funds garnered Rs 16,997 crore, and hybrid funds Rs 15,009 crore. From the debt-oriented schemes, liquid funds saw the highest net outflows at Rs 39,675 crore, followed by low-duration funds at Rs 9,432 crore and money market funds at Rs 8,384 crore. Ultra-short duration and floater funds also saw net outflows of Rs 6,000 crore each, followed by Rs 4,865 crore from overnight funds.
Here’s what analysts have to say about these trends:
Gopal Kavalireddi, Vice President of Research at FYERS
Fund flows continue to be buoyant in equity-oriented schemes, with net inflows greater than Rs 15,000 crore for the third month in a row. Thematic funds saw the highest net flows of Rs 6,006 crore, a rise of Rs 4041 crore (205 per cent) over the previous month. Small-cap funds continued their trend as the investors preferred the choice of equity funds with net inflows of Rs 3,858 crore. With underperformance in large-caps over the last nine months, investors increased their allocation to this segment, with inflows of Rs 2,339 crore to the large & mid-cap funds.
Hybrid schemes saw net flows of Rs 15,009 crore, mainly due to an inflow of Rs 10,645 crore into arbitrage funds. Many investors have started reallocating their funds between equity and debt in light of the Indian markets moving to all-time high levels. Multi-asset allocation funds had inflows of Rs 2,420 crore, followed by balanced advantage funds at Rs 1,369 crore.
For CY23, the net flows for equity funds stood at Rs 1.61 lakh crore, with 39 per cent or Rs 63,949 crore coming into mid and small-cap mutual funds. Sectoral/thematic funds were the next best category, garnering Rs 30,841 crore for the year. Large-cap and focused funds were the only two sectors with negative inflows of around 1.7 per cent each.
SIP inflows for December were at Rs 17,610 crore, marking the second month of inflows greater than Rs 17,000 crore. The total SIP inflows for the first nine months of FY24 stood at Rs 1.42 lakh crore and at Rs 1.84 lakh crore for CY23.
Asset management companies (AMCs) continued to keep investors interested with 21 new fund offerings (NFOs) in December. As much as Rs 6,321 crore was raised by 6 equity schemes, largely driven by the 4 thematic/sectoral funds raising Rs 4,259 crore. 7 fixed-term plans raised Rs 2,060 crore while 2 hybrid schemes raised Rs 1,228 crore.
The total assets under management (AUM) of the mutual fund industry ended at Rs. 50.78 lakh crore, rising 27.3 per cent in CY23. Equity mutual funds accounted for 43% of the total AUM at Rs 21.76 lakh crore.
With a very large outperformance by Nifty midcap and smallcap at 46.6 per cent and 55.6 per cent in just 9 months, and with the interest rate cycle expected to start reversing soon, investors should look to rebalance their portfolio between equity and debt as well as various market capitalisations. There is a high possibility of the broader market consolidating in the current year, owing to pockets of extreme valuations in mid and small-caps, while the large-cap stocks gain some favour due to their relative underperformance.”
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Anand Vardarajan, Business Head – Institutional Clients, Banking, Alternate investments & Product Strategy, Tata Asset Management:
Entire fixed income category continued to be under pressure on flows. Quarter end outflows due to tax payments and balance sheet build up coupled with tight liquidity had an impact on the liquid and ultra-segments while even the longer end lacked much traction on flows despite yields being quite attractive.
On a relative basis, large cap offer greater value over mid and small cap at this time. However, performance of the latter has been stronger and over the last year which continues to attract flows into these categories including sectoral and thematic funds.
The arbitrage spreads had widened, and the returns here improved. Not surprisingly, this saw the highest net inflows in the month of Dec. Multi asset and BAF were a distant second and third in flows.
G. Pradeepkumar, CEO, Union Asset Management Company Pvt LTD
The net flows into equity funds have increased in December indicating sustained investor interest in equity mutual funds. SIP numbers also remained robust at more than Rs 17,000 crore for the second consecutive month. With the expectations of high economic growth and political continuity, investors appear to be increasingly confident about the prospects of Indian equity market. At the same time, given the higher spreads on the arbitrage side and the equity taxation, the flows into arbitrage funds also remained high. The tighter liquidity conditions probably led to higher outflows from the short term debt funds such as the Liquid Funds.