 "Active funds top choice for investors as mutual fund mkt hits Rs 67 lakh cr")
India's mutual fund industry is experiencing a remarkable surge, with assets under management (AUM) growing more than six times in the last decade, touching Rs 66.93 lakh crore in December 2024, according to the ‘Where the Money Flows’ study by Motilal Oswal Asset Management Company (MOAMC). A key takeaway from the study is that while Passive Funds are on the rise, Active Funds continue to dominate the market, with a larger share of inflows and AUM.
What do investors prefer?
As of December 2024, Passive Funds reached an AUM of Rs 10.85 lakh crore, accounting for 16% of the market share. Meanwhile, Active Funds maintained a strong lead, with an AUM of Rs 56.08 lakh crore. The study highlighted that equities make up the lion’s share of AUM, at 60.19%, followed by debt funds at 26.77%, hybrid funds at 8.58%, and other investment categories at 4.45%.
Active Funds vs Passive Funds:
Active Funds are managed by fund managers who make decisions on buying and selling securities based on research and market trends, aiming to outperform the benchmark index. These funds usually come with higher management fees.
Passive Funds track specific market indices and aim to replicate their performance rather than beat them, with lower management fees due to the lack of active management.
"India’s mutual fund industry has seen remarkable growth, with AUM reaching Rs 67 lakh crore, driven by economic progress and rising financial literacy. This expansion reflects the industry’s ability to meet diverse investor needs and strengthen the financial ecosystem," said Prateek Agrawal, MD & CEO of Motilal Oswal Asset Management Company.
"Our latest report comprehensively examines cash flow trends and investor behavior, showing a 6x growth in AUM over the past decade. These insights reveal emerging patterns, such as the dominance of Active Flexi Cap and Mid Cap funds, and the rise of Passive Funds to a 16% market share," said Pratik Oswal, Chief of Business Passive Funds at MOAMC.
Equity Funds Lead the Charge
The study revealed strong investor interest in equity funds, which dominated the inflows with Rs 199,000 crore recorded in the last quarter. Active equity funds led the way with ₹105,000 crore in net inflows, followed by Passive Equity funds which saw Rs 29,000 crore in inflows. The study also indicated that debt funds continued to attract substantial interest, with Active Debt funds receiving Rs 47,000 crore in inflows, while Passive Debt funds faced net outflows of ₹9,000 crore.
Broad-Based funds remained the preferred choice for investors, with 69% of equity net inflows directed into this category. The share of Active Broad-Based funds increased from 57% to 70% on a quarter-on-quarter basis, while the share of Passive Broad-Based Funds declined from 90% to 66%.
Flexi Cap and Mid Cap funds stood out in the Broad-Based segment, each attracting Rs 15,000 crore in net inflows. Despite the increased preference for passive funds in large-cap allocations, a noticeable shift was seen as more funds flowed towards Mid-Cap and Small-Cap segments.
Thematic Funds See Mixed Results
In the Thematic segment, there was a decline in net inflows, which dropped from Rs 17,000 crore to Rs 14,000 crore. Consumption and Infrastructure funds attracted the most interest, accounting for Rs 4,500 crore. Passive Thematic funds also saw growth in emerging themes such as Capital Markets, Electric Vehicles (EV), and Tourism, offering a glimpse of new areas of focus for investors.
Debt and Liquid Funds Maintain Stability
Within debt funds, Constant Maturity funds dominated, receiving around ₹37,000 crore in net inflows, followed by Corporate Bond and Gilt funds at Rs 6,000 crore and Rs 4,000 crore, respectively. Conversely, Target Maturity funds faced net outflows of Rs 8,000 crore.
Liquid funds were a preferred choice for short-term investments, comprising 41% of net inflows, with ₹15,000 crore directed towards them. Low Duration and Ultra Short Duration categories followed, attracting ₹7,500 crore and ₹7,000 crore, respectively. Investors generally utilize these funds for parking excess cash in the short term, contributing to high volatility in inward and outward flows.
Multi-Asset and Hybrid Funds See Strong Growth
Multi-Asset funds continued to draw strong investor interest, making up 48% of the net inflows in the Hybrid category. Balanced Advantage funds captured 25%, while Equity Savings funds saw a decline in share, from 26% to 15%. Aggressive Hybrid funds, however, experienced a surge, increasing from 4% to 12% quarter-on-quarter.
International Funds Remain Quiet
International funds experienced minimal flows, largely due to restrictions imposed by the Reserve Bank of India on new investments in such schemes. Both Active and Passive Broad-Based international funds recorded negligible inflows, and passively managed thematic international funds saw outflows of Rs 300 crore.
Here are the key highlights of the report:
AUM has grown over 6X in the last decade, reaching Rs 66.93 lakh crore in December 2024 from Rs 10.51 lakh crore in December 2014.
Market Share of Active vs Passive Funds:
- Active Funds AUM: Rs 56.08 lakh crore (84% of total AUM).
- Passive Funds AUM: Rs 10.85 lakh crore (16% of total AUM).
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Investment Preferences:
- Equity Funds: Make up 60.19% of total AUM, with Rs 199,000 crore in net inflows for the quarter.
- Debt Funds: Account for 26.77% of total AUM.
- Hybrid Funds: 8.58% of total AUM.
- Others: 4.45% of total AUM.
Equity Funds Inflows in DEC quarter:
- Active Equity Funds: Rs 105,000 crore in net inflows.
- Passive Equity Funds: Rs 29,000 crore in net inflows.
- Broad-Based Funds: Dominated equity inflows with 69% market share. Active Broad-Based funds increased from 57% to 70% QoQ.
Flexi Cap and Mid Cap Funds:
Active Flexi Cap and Mid Cap Funds received Rs 15,000 crore each in net inflows.
Thematic Funds:
- Overall net inflows decreased from Rs 17,000 crore to Rs 14,000 crore.
- Consumption and Infrastructure funds saw significant inflows (Rs 4,500 crore).