 "mutual funds")
India's mutual fund industry recorded net inflows of approximately Rs 51,000 crore in the July – September quarter, of which active equity led the way with net inflows of about Rs 74,000 crore, followed by Rs 9,000 crore in passive funds, revealed a study by Motilal Oswal.
On the passive side, equity claimed the lion's share with around 78% of net inflows, while commodities held an 18% share.
Within equity, investors flock to broad-based and arbitrage funds
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The study shows Arbitrage funds gaining popularity presumably as investors turned to Arbitrage funds as a more tax-efficient substitute to Liquid funds. At more than 80% of market share, Arbitrage and Broad-Based categories took away the lion’s share of net inflows into equity funds during the July – September quarter.
Twenty-nine new schemes were launched during this July-September period, collecting Rs 16,000 crore in assets under management.
The data revealed that Broad-based funds have seen the highest net inflows at Rs 42,000 crore while ELSS and Focused funds registered combined net outflows of Rs 2,000 crore.
Just 3 AMCs took away almost half of the quarterly net inflows, while 1 AMC accounted for 2/3rd of the quarterly net outflows.
The data revealed that Broad-based funds have seen the highest net inflows at Rs 42,000 crore while ELSS and Focused funds registered combined net outflows of Rs 2,000 crore.
Just 3 AMCs took away almost half of the quarterly net inflows, while 1 AMC accounted for 2/3rd of the quarterly net outflows.
Impressive returns in the Active Small Cap segment attract investors
The study further revealed that investors continued to bet on Active Small Cap funds, highlighting high investor risk appetite taking away one-third of the Rs 33,000 crore of net inflows.
Active Multi Cap funds picked up steam with two NFOs garnering Rs 2,000 crore, out of the Rs 8 crore net inflows in Q2FY24.
Investors flocked to Passive Large Cap funds with the category receiving 90% of all net inflows while Active Large Caps experienced outflows.
Investors flocked to Passive Large Cap funds with the category receiving 90% of all net inflows while Active Large Caps experienced outflows.
Other Passive categories like Mid and small caps also received high net inflows considering relatively small AUM.
In the last 5 years, passive funds have received an increasing share of net flows
On a cumulative basis, equities have received Rs 6.8 trillion in estimated net flows since December 2018. The split of these flows between Active and passive equity funds is roughly 2:1.
The steep rise in flows to passive funds can be largely attributed to investments by EPFO in the past 5 years. If EPFO flows are excluded, Passive equities have received Rs 78,000 crore inflows.
Within Debt, the constant maturity funds remain out of focus in both Active and Passive
Debt Funds faced substantial net outflows in the past quarter with Constant Maturity funds accounting for over 99% of the Rs 50,000 crore net outflows. This was followed by Banking & PSU and Target Maturity categories. Floating Rate and Gilt funds were the only categories to receive net inflows.
Interestingly, while Active Constant Maturity saw net outflows, Passive Constant Maturity funds attracted net inflows.
Liquid & Money Market funds drive net outflows
Liquid and overnight funds accounted for more than 90% of net outflows from the Constant Maturity category, followed by ultra-short and short-duration funds. Most of these net outflows came during August and September.
Generally, investors use debt funds with maturity of up to 1 year to park excess cash in the short term, leading to high volatility in inward and outward flows. Low Duration and Money Market funds, on the other hand, saw net inflows of Rs 11,000 crore in aggregate.
Investors flock to Multi-Asset Funds
Multi-asset funds led the hybrid category with some large NFOs, securing half of the net inflows, followed by Balanced Advantage funds (BAF) and Equity Savings funds, which claimed over 40% of the share.
After three consecutive quarters of net outflows, Equity Savings funds saw a reversal of flows this financial year, likely driven by investors transitioning to tax-efficient equity schemes with relatively lower volatility.
Balanced Advantage funds also saw a shift from four consecutive quarters of net outflows to net inflows.
After three consecutive quarters of net outflows, Equity Savings funds saw a reversal of flows this financial year, likely driven by investors transitioning to tax-efficient equity schemes with relatively lower volatility.
Balanced Advantage funds also saw a shift from four consecutive quarters of net outflows to net inflows.
On a cumulative basis, Hybrid funds have received net outflows of Rs 26,000 crore since December 2018. Balanced Advantage and Equity Savings funds led the way, with the Hybrid category attracting net inflows across all sub-categories.
"The Hybrid category saw relief with the introduction of Balanced Advantage funds (BAF), allowing fund managers flexibility in asset allocation and driving consistent cash flows due to aggressive promotion by several AMCs," said the study.
