FUND FULCRUM

August 2021

 

Mutual funds broke many records in the month of July 2021. Net inflow in equity funds has reached its all-time high figure of Rs.22,584 crore in July 2021. This is the highest net inflow for equity funds at least since the re-categorization of schemes by SEBI. Monthly SIP inflow of Rs.9,609 crore is an all-time-high for mutual funds. New SIP registrations too have registered a new peak of 23.79 lakh, according to the latest data released by AMFI. RBI's accommodative stance, healthier earnings growth, vaccination-driven steady containment of COVID-19 pandemic and global and domestic liquidity is driving the equity markets to historic highs. Taking cue, retail investors too are participating in the equity rally, largely through mutual fund SIPs, on a continued rising quantum at record levels. In July 2021, NFO of ICICI Prudential Mutual Fund's flexicap scheme collected Rs.9,800 crore, which is highest for an equity fund NFO. Inflows in debt funds is high too. The category has collected Rs.73,694 crore in the previous month to take total debt AAUM to Rs 14.73 lakh crore. Overall, equity schemes has witnessed net inflows of Rs.22,584 crore, which is 4.5 times higher than the June inflow of Rs.5,988 crore. The July 2021 inflow is highest at least since scheme re-categorization. Apart from value funds (Rs.462 crore outflow) and ELSS (Rs.512 crore outflow), all other equity schemes have posted inflows. Flexicap funds have recorded highest inflows at Rs.11,508 crore followed by sectoral funds (Rs.5,729 crore inflows) and small cap funds (Rs.1,779 crore inflow). Closed-ended equity schemes have continued to post outflows largely due to maturity of a few schemes. The outflow in July 2021 was Rs.1,840 crore. Net inflow in open-ended debt funds was Rs.73,694 crore as against Rs.3,566 crore inflow in June 2021 and Rs.44,512 crore in May 2021. Liquid funds (Rs.31,740 crore inflow) and money market funds (Rs.20,910 crore inflow) were biggest contributors in total debt inflows. Corporate bond funds and short duration funds have registered highest outflows at Rs.3,068 crore and Rs.1,734 crore, respectively. Inflows in hybrid schemes has gone up 58% to Rs.19,481 crore from Rs.12,361 crore in June 2021. Arbitrage fund was the biggest contributor for the second month in a row. The category received net inflows of Rs.14,924 crore in July 2021. Dynamic asset allocation funds have recorded second highest inflows in the category at Rs.2,453 crore. Industry AAUM has gone up by over Rs.1 lakh crore to Rs.35.15 lakh crore in July 2021. In June 2021, the AAUM was Rs.34.10 lakh crore. Total number of SIP accounts rose by 15 lakh to 4.17 crore, thanks to a record high 23.79 lakh new SIP registrations. Gross inflows through SIP has risen to a record Rs.9,609 crore in July 2021. Fifteen NFOs were launched in July 2021 and they together mobilized Rs.17,332 crore.

 

AMFI’s recently published figures show that individual investors held Rs. 18.34 lakh crore i.e. 54% of the industry assets as on June 2021. Individual-investor assets include investments by HNIs as well. Individual investors largely invested in equity-oriented schemes (73%) followed by debt-oriented schemes (21%). Equity-oriented schemes include equity and aggressive hybrid funds. Individual equity assets jumped by 49% to Rs. 13.37 lakh crore in June 2021. Similarly, individual investments in debt-oriented schemes saw a rise of 23% from Rs. 3.07 lakh crore to Rs. 3.79 lakh crore. The biggest surge (121%) was in the ETFs/FOFs category where the assets grew from Rs. 15,726 crore to Rs. 34,787 crore over the last year. On the other hand, individual investors reduced their holding in liquid/money market schemes by around 15%. These assets dipped from Rs. 97,874 crore to Rs. 83,277 crore over the last year. This can be attributed to mark-to-market gains and growing popularity of mutual funds. Many investors have been investing in equity funds due to strong performance of mutual funds compared to other financial products. Individual investors primarily prefer regular plans i.e. distributors. Of the total individual assets of Rs. 18.34 lakh crore, 80% (Rs. 14.67 lakh crore) was facilitated by distributors. A review of the geographic spread shows that 26% i.e. Rs.4.77 lakh crore has come from B30 locations. Of this, around 85% of the assets i.e. Rs. 4.03 lakh crore was brought in by distributors. This forms around 22% of the total individual assets. Asset-wise composition shows that 84% of individual equity assets, 72% of individual debt assets and 63% of individual liquid/money market schemes have come through distributors. In the case of ETFs and FoFs, 54% of individual investors went through direct plans.    

 

AMFI data shows that HDFC MF, SBI MF and ICICI Prudential MF are the top choices for retail investors. These fund houses have held the highest retail AAUM in the said order. As on June 2021, their retail asset base stood at Rs. 94,306 crore, Rs. 79,677 crore and Rs. 73,299 crore respectively. Nippon India MF and Aditya Birla Sun Life follow the top three fund houses with retail AAUM of Rs. 69,579 crore and Rs. 62,964 crore, respectively. The next five fund houses having the highest retail AAUM are Axis MF (Rs. 61,600 crore), UTI MF (Rs. 57,953 crore), Mirae Asset MF (Rs. 34,759 crore), DSP MF (Rs. 34,373 crore) and Franklin Templeton MF (Rs. 32,632 crore). The retail AUM of the top 25 fund houses is Rs. 7.65 lakh crore. Of the total retail AUM, Rs. 6.46 lakh crore or 84% has come from equity assets. Debt funds have contributed around Rs. 59,864 crore (8%) and the rest Rs. 59,175 crore (8%) has come from hybrid schemes, exchange traded funds (gold & others) and fund of funds investing overseas. HDFC MF has topped the equity retail AAUM category with assets of Rs. 65,808 crore whereas UTI MF has the highest debt retail AAUM of Rs. 14,882 crore.

 

Axis Mutual Fund’s average equity AUM of Rs 1.06 lakh crore was the highest among all mutual funds in the first quarter of FY 2022. HDFC MF, which was at the top in the previous quarter, occupies second spot with assets of Rs 1.04 lakh crore, shows an analysis of quarterly average AUM (QAAUM) data. Equity AUM includes pure equity schemes and ELSS. ICICI Prudential MF has the third highest equity AUM of Rs 1.02 lakh crore followed by SBI MF with Rs 1.01 lakh crore assets. In absolute terms, the equity AUM of Axis MF has gone up by Rs 9,060 crore. HDFC MF and SBI MF have seen their AUM go up by Rs 4,927 crore and Rs 7,743 crore, respectively. The quarter marked the entry of four fund houses — SBI, HDFC, ICICI Prudential and Axis — in the Rs.1-trillion equity AUM club with a 5-9% growth in equity assets. Axis MF has registered the highest growth of 9%. Mirae Asset, Edelweiss, Invesco, Canara Robeco, PPFAS and PGIM India have posted double digit growth in equity AUM. PGIM India's AUM grew by 48% during the quarter while PPFAS reported a 33% jump in equity assets. Overall, the top 25 mutual funds manage equity assets worth Rs 10.3 lakh crore as against Rs 9.68 lakh crore in the fourth quarter of FY 2021.

 

Quant MF, Trust MF and ITI MF were the top three fastest growing mutual funds during the April-June period (Q1) of FY 2021-22. While Quant MF has witnessed 127% gain in AUM, Trust MF and ITI MF saw 37% and 32% rise in AUM, according to the latest AMFI data. PPFAS MF and PGIM India MF were the other mutual funds to register over 20% growth. PPFAS MF's AUM rose by 30% to Rs. 11,342 crore, while PGIM India's assets went up 24% to Rs. 8,110 crore during the first quarter of FY 2022. However, the stellar growth of these mutual funds came on a very low base. In absolute terms, top ranked fund house SBI MF's AUM grew at the fastest pace with Rs 18,700 crore addition in AUM. Kotak Mahindra MF came in second with Rs 12,800 crore increase in AUM. Nippon India MF, Axis MF and ICICI Prudential MF were the next three in the list. Franklin Templeton MF and Yes Bank MF continued to see a decline in the first quarter of the new financial year. FT MF's AUM shrank 27% to Rs 60,500 crore last quarter while Yes Bank MF witnessed a 26% fall in AUM.

 

AMFI’s latest data shows that 16% of assets in the MF industry has come from B30 cities amounting to Rs.5.56 lakh crore as on June 2021, rising from Rs.4.01 lakh crore in June 2020. Assets in T30 cities stood at Rs.28.54 lakh crore in June 2021. Further analysis of the data shows that a large chunk of the B30 assets is in equity oriented schemes. Of the total B30 AUM, 70% was from equity-oriented schemes while the remaining 30% belonged to debt schemes as on June 2021. Many people in B30 cities prefer equity funds as they have adequate exposure to debt schemes through bank FDs and pension funds. This ratio is reversed in T30 cities due to presence of institutions and corporate houses. Nearly 60% of the total T30 AUM is invested in debt schemes. Over 26% of the assets held by individual investors is from B30 location. Investors in these locations prefer investing in mutual funds through distributors. AMFI data shows that 86% of the total individual assets in B30 location has been in regular plan. SBI, ICICI Prudential and HDFC were the top three fund houses with highest assets in T30 location as on June 2021. SBI Mutual Fund has retained the top rank in T30 market share. The fund house has 79% of its total assets i.e. Rs. 4.24 lakh crore of the total Rs.5.38 lakh crore in top 30 location. ICICI Prudential Mutual Fund and HDFC Mutual Fund occupy the next two spots with assets of Rs. 3.63 lakh crore each. Aditya Birla Sun Life Mutual Fund and Kotak Mahindra Mutual Fund follow the top three fund houses with assets of Rs.2.39 lakh crore and Rs. 2.30 lakh crore, respectively in T30 location. The next five fund houses with the highest T30 market share were Nippon India Mutual Fund (Rs. 2.01 lakh crore), Axis Mutual Fund (Rs.  1.79 lakh crore), UTI Mutual Fund (Rs.  1.45 lakh crore), IDFC Mutual Fund (Rs.  1.18 lakh crore) and DSP Mutual Fund (Rs. 0.90 lakh crore). These findings are based on the review of monthly AAUM data published by fund houses. The total asset of the top 25 fund houses was Rs. 33.68 lakh crore of which 84% i.e. 28.21 lakh crore was from T30 locations. Of these T30 assets, 36% was held in equity (Rs. 10.03 lakh crore) and 49% was in debt (Rs. 13.72 lakh crore).

 

AMFI’s latest data shows that New Delhi, Goa and Maharashtra are the top three states in terms of AUM per capita. AUM per capita is the total AUM of the state/UT divided by total number of folios. New Delhi and Maharashtra which collectively hold more than half of the industry assets as on June 2021 held the first and third spots respectively, in terms of AUM per capita. Goa, which has the 18^th rank in terms of assets, came third in this category. New Delhi, Goa and Maharashtra have Rs. 1.44 lakh, Rs. 1.27 lakh and Rs. 1.23 lakh of AUM per capita respectively. Next in line were Chandigarh and Haryana, whose AUM per capita is Rs. 86,000 and Rs. 45,000 respectively. Assam (Rs. 4,796), Tripura (Rs. 3,251), Jammu & Kashmir (Rs. 3,027), Bihar (Rs. 2,287) and Manipur (Rs. 1,968) were in the bottom five. The top five states in terms of AUM per capita also made it to the top five list of AUM % of GDP category. Their rankings slightly varied with Maharashtra on the top with 62.2% followed by New Delhi (36.9%), Goa (25.4%), Chandigarh (23.5%) and Haryana (17.6%). On the other hand, Arunachal Pradesh (3.6%), Mizoram (3.0%), Jammu & Kashmir (2.6%), Tripura (2.6%) and Manipur (2.3%) occupied the bottom five rankings.

 

Piquant Parade

Samco Securities has received SEBI's final approval to start mutual fund business. The discount broker applied for the licence in June 2018 and received in-principle approval in August 2019. Samco Securities plans to offer only active funds as of now. It will look at passive space after some time. The company is expected to take a different approach and offer unique mutual fund products, the details of which are yet to be finalized. Samco is the second applicant to get mutual fund licence this year. NJ IndiaInvest received SEBI's final go ahead in May2021. The company plans to launch two rules-based passive schemes.

 

As Indian investors are warming up to the idea of passive investing, many new and upcoming mutual fund players are planning to offer only passive funds to investors. Among the numerous fintechs and PMS firms in the process of starting mutual fund business, Zerodha and Angel Broking have confirmed that they will sell only passive schemes. While Zerodha is awaiting mutual fund license from SEBI, Angel Broking is in the advanced stage of applying for the regulator's approval. Very few active managers have consistently added value. Most investors are not concerned about alpha. They are looking for simple, transparent and easy to understand products that can help them fulfill their long term goals like retirement. Angel Broking will be using the rule-based investment approach to offer smart passive products to investors. A combination of smart beta funds and passive ETFs (Exchange Traded Funds) would cover the complete investment needs of any investor at far lower costs, enabling new customers to experience equity with ease. Passive investing has gained momentum in India in the last one year or so. There have been a plethora of index fund and ETF launches in recent months. NSE has 100 ETFs listed on its platform and 21 one of them were launched in the last one year alone. The AUM of index funds doubled in the last calendar year from Rs 7,944 crore to Rs 15,359 crore. In addition, the AUM of ETFs (excluding gold) rose 46% from Rs 1.75 lakh crore to Rs 2.57 lakh crore.

 

As the industry has successfully imbibed the notion of ‘Mutual funds sahi hai’ among its investors, it now needs to inculcate the culture of ‘Saarthi zaroori hai’, according to a 14-point-action document prepared by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII) with inputs from the mutual fund industry. The document has urged the industry to build greater emphasis on role of advisors and expand their productivity and reach by leveraging technology. "The B30 segment offers a wide playfield that is still an untapped territory with low penetration. For expanding this market, all stakeholders – regulators, asset managers, distributors, investors – need to come together to continue with the existing incentive structure and take this business forward by mobilizing increased number of investors," the action document said. It further stated that the industry needs to attract more people into the business of distribution, which can be done by campaigning within educational institutions and educating people about the profitable aspects of becoming a Mutual Fund Distributor. Citing a recent Boston Consulting Group (BCG) survey, the release said that 80% of urban consumers who bought mutual fund have digital footprint and 66% of them were influenced digitally during the purchase process. "MF distributors and advisors can leverage this increase in acceptability of digital channels to improve efficiencies in their business model by unlocking significant time earlier spent on physical travel, physical form filling, manual tracking and reporting, etc.," the report said. Other recommendations for the industry included simplification of offerings, using technology to drive efficiency of fund managers, strengthening internal risk management, communicating risk-return effectively to retail investors and leveraging new strategies to deliver enhanced performance.

 

To be continued…