MF flows decoded: Flexi-caps rule Rs 1 trillion club, followed by sectoral

The Indian mutual fund industry's Trillion Rupee Club welcomes new members! Flexi-cap funds lead by AUM, but index ETFs surprisingly hold the top spot

The Indian mutual fund industry's prestigious Trillion Rupee Club has a new leader – index ETFs!  The club, reserved for fund categories exceeding Rs 1 trillion (Rs 100,000 crore) in AUM (Assets Under Management), welcomes one new member this month.

Currently, 20 out of 39 open-ended fund categories boast an AUM exceeding Rs 1 trillion, showcasing the industry's growth.

Debt & Equity Breakdown:

• Active debt schemes hold a strong presence, with 5 categories including liquid funds, corporate bond funds, and money market funds exceeding the Rs 1 trillion mark.
   
• Equity shines even brighter, with 10 out of 11 categories exceeding Rs 1 trillion. Notably, flexi-cap funds lead the pack with a staggering AUM surpassing Rs 4 trillion.
   
• Large-cap, sectoral/thematic, and mid-cap funds follow closely, boasting AUM between Rs 3 trillion and Rs 4 trillion.

" One category of equity funds (Flexi-Cap Funds) has crossed the Rs 4 Trillion  mark. There are 3 categories of equity funds (large cap funds, sectoral funds, mid-cap funds) having AUM of between Rs 3 Trillion and Rs 4 Trillion. Large & Mid-Cap funds, small cap funds and ELSS Funds have an AUM of between Rs 2 Trillion and Rs 3 Trillion; while multi-cap funds, value funds and focused funds have AUM between Rs 1 Trillion and Rs 2 Trillion. Flexi-cap funds are the largest category in terms of AUM, followed closely by sectoral / thematic funds," said brokerage IIFL in a note. 

Hybrid and Passive Funds:

• The hybrid category sees 3 members in the club – Aggressive Hybrid Funds, Dynamic Asset Allocation Funds (BAFs), and Arbitrage Funds. BAFs reign supreme with the highest AUM within this group.
• Passives make a powerful statement, with both index funds and index ETFs exceeding the Rs 1 trillion mark.

However, inflows into Hybrid funds dropped by 50% to Rs 8,854.74 crore in June from Rs 17,990.67 crore in May. Net flows into multi-asset allocation funds were Rs 3,453.12 crore, and arbitrage funds received Rs 3,836.58 crore. Meanwhile, passive funds maintained steady inflows, with net inflows of Rs 14,602 crore, driven by Rs 9,134 crore into Index ETFs and Rs 5,072 crore into index funds.

The Unexpected Leader:

While flexi-cap funds might seem like the overall AUM leader, a surprising twist emerges – index ETFs! This category holds the highest AUM within the entire Trillion Rupee Club, clocking in at a massive Rs 7.45 trillion. However, it's important to note that this figure combines both equity and bond index ETFs.

The Indian mutual fund industry witnessed significant growth in June 2024, with net Assets Under Management (AUM) reaching a record high of Rs 61.16 trillion. This represents a jump of over Rs 2 trillion compared to May 2024, driven primarily by strong inflows into equity funds.

"Despite challenges in the debt fund segment, overall, AUM continued to rise, reflecting the evolving investment strategies and confidence of investors. Key trends include a continued search for strong narratives in debt funds, high alpha interest in equity sectoral/thematic funds at market peaks, and a growing preference for hybrid funds for diversified asset allocation," said  Rishabh Goel, MD, Tailwind Financial Services.

Systematic Investment Plans (SIPs) played a crucial role in driving these inflows, contributing Rs 21,262 crore in June, compared to Rs 20,904 crore in May. This period saw the registration of 55,12,962 new SIPs, bringing the total number of SIP accounts to 8,98,66,962. Additionally, seventeen new fund offerings (NFOs) were launched in June, raising a total of Rs 15,227 crore. Sectoral and thematic funds were particularly popular, collecting Rs 12,974 crore from these NFOs.

"Sectoral funds led equity scheme inflows in June with Rs 22,351 crore, followed by multi-cap funds at Rs 4,708 crore and flexi-cap schemes at Rs 3,058 crore. Large-cap fund inflows were Rs 970 crore, mid-cap funds saw Rs 2,527 crore, and small-cap funds had Rs 2,263 crore in inflows. The strong performance of sectoral and thematic funds highlighted investor interest in targeted investment strategies," added Goel.

Here are some other quick takeaways ,as per IIFL:

•  Debt funds saw net outflows of Rs 1.07 Trillion in June 2024, after 2 months of consecutive inflows. This is largely on account of the quarter end advance tax payout pressures. 
• Equity fund inflows touched a lifetime record of Rs 40,608 Crore in June 2024, largely driven by sectoral / thematic funds; which dominated the NFO scene in the month. 
• In last one year, the big story has been the emergence of hybrid funds as a smart asset allocation option. While hybrid flows have tapered compared to the previous two months, passive fund have showed steady flows in the latest quarter.
• For June 2024, debt fund AUM fell to Rs 14.13 Trillion compared to Rs 15.12 Trillion at the close of May 2024. This was on account of the treasury redemptions in June 2024. Debt fund AUM is still up 4.82% over June 2023. 
• For June 2024, equity fund AUM edged up to record levels of Rs 27.68 Trillion; a yoy growth in AUM of 58.81%. That is not surprising with the Nifty and Sensex at lifetime highs. 
• Alternate assets saw AUM grow by 44.33% yoy; across hybrids, solutions funds, and passive fund AUM. Here are the AUM shares for the last 6 months

"There were 3 insights we gathered from the mutual fund flows data for June 2024. Firstly, the search of a good narrative continues in debt funds; and that should hopefully come after the next monetary policy. Secondly, equity funds are attracting alpha interest through sectoral and thematic funds at market peaks. Finally, investors are selecting hybrid funds for asset allocation; which is a good sign. That could be the next big trend to watch out for," said IIFL.