MUTUAL FUND BRIEFING FOR SEPTEMBER 2024
The month of September 2024 saw the overall mutual fund AUM rise to ₹67.09 Trillion; compared to ₹66.70 Trillion in August, ₹64.97 Trillion in July, ₹61.16 Trillion in June, and ₹58.91 Trillion in May 2024. The month of September 2024 was once again a month of heavy redemptions in debt funds to the tune of ₹(1.14) Trillion; in contrast to persistent inflows in the previous 3 months. Each quarter, the selling in debt funds is quite heavy by corporates who redeem monies parked in liquid funds to pay advance taxes. However, amidst the cycles in debt fund inflows, equity funds continued to grow, even as other categories like Hybrids and Passive funds faltered. Active equity funds saw monthly inflows of ₹34,419 Crore in September 2024; compared to ₹38,239 Crore in August, ₹37,113 Crore in July, a record ₹40,608 Crore in June, and ₹34,697 Crore in May 2024. In fact, the average equity fund flows of the last 5 months has been of the order of ₹37,015 Crore.
SIP flows in September 2024 touched a record ₹24,509 Crore. This is the sixth consecutive month that the mutual fund monthly gross SIP flows have been above ₹20,000 Crore. The month of September 2024 also saw 66.39 Lakh SIP folios being added; compared to 63.94 Lakh SIP folios in August, a record 72.62 Lakh SIP folios in July, 55.13 Lakh SIP folios in June, and 49.74 Lakh SIP folios added in May 2024. The NFO (new fund offering) flows were also robust at ₹14,575 Crore, dominated by Sector funds, and other equity fund categories. In fact, if you look at NFOs in the first half of FY25, sector funds accounted for 75% of overall NFO inflows. As of the end of September 2024, SIP folios have touched 9.87 Crore while the SIP AUM has already touched ₹13.82 Trillion. If one were to encapsulate two stories that triggered growth in equity fund AUMs, it would be SIPs and the deluge of NFOs.
SIP STOPPAGE RATIO AGAIN DETERIORATED IN SEPTEMBER 2024
While the gross inflows into Indian mutual funds via SIPs have been impressive, one also needs to take a look at the SIP stoppage ratio to get a more rational picture. There are some clear concerns over the SIP stoppage ratio. Just to recap; the SIP stoppage ratio is the ratio of SIPs stopped to SIPs initiated. AMFI only publishes gross SIP numbers, but it is the net SIP that really matters. For that, the gross SIP flows have to be adjusted for SIP closures to get the net SIP flows. Lower the SIP stoppage ratio, higher the retention and higher the net SIP accretion. The SIP stoppage ratio (SIPs Discontinued / SIPs registered) which had spiked to 88.38% in May 2024 sobered to 58.68% in June and further to 51.40% in July 2024. However, August 2024 saw SIP stoppage ratio bouncing back to 57.14%, while the SIP stoppage ratio has further spiked to 60.72% in September 2024.
Even the cumulative SIP stoppage ratio for the first 6 months of FY24 remains fairly high at 60.23%; although this could be distorted due to the exceptionally high SIP closures in May 2024 and September 2024. We now gather insights from the AMFI monthly review report, which analyses diverse areas like mix of investors, retail spread, retail intensity, ageing of investors etc. The report for September 2024 presents interesting narratives about the growth of mutual funds in India. These narratives pertain to overall AUM of mutual funds, the mix and colour of AUM accretion and the nature of investors. AMFI also provides value-added analytics like ageing of equity fund investments and average holding period.
KEY TRENDS IN MUTUAL FUNDS – SEGMENT LEVEL (SEPTEMBER 2024)
Mutual fund segment level trends for September 2024 are confined to a macro level and have more to do with the colour and direction of the flows into specific fund classes.
- Average assets under management (AAUM) of all mutual fund schemes combined, stood at an elevated level of ₹68.00 Trillion as of end September 2024; compared to ₹66.04 Trillion in August, ₹64.71 Trillion in July, ₹61.33 Trillion in June, ₹58.60 Trillion in May, and ₹57.01 Crore in April 2024. That translates into dollar AUM of nearly $810 Billion. In September 2024, the average AUM and the closing AUM were both higher compared to August 2024. The accretion in equity AUM in September was triggered partially by mutual fund inflows and largely by accretion in equity indices. This not only boosted the AUM of equity funds, but also helped hybrid funds and equity index funds. Like in every quarter end, the debt fund flows in September 2024 were impacted by the quarterly treasury selling for advance tax dues. On a yoy basis, the mutual fund AAUM as of September 2024 has grown by a healthy 42.29% compared to September 2023.
- In the last couple of years, we have seen a gradual shift in the overall AUM mix from active debt to active equity; and that trend has only gotten more pronounced in recent months. September 2024 was no exception. If you compare September 2024 with August 2024, active equity funds saw higher AUM share while active debt funds and treasury funds saw lower AUM share. However, the market share of passive funds and hybrid funds was stable. Active equity fund share in AUM for September 2024 was up 90 bps from 60.1% to 61.0% MOM, while AUM share was up 690 bps yoy.
- Passive fund share was flat at 12.7% in September 2024 while it is also flat on yoy basis. Passive funds include index-based equity products and index-based debt products. The share of active debt funds was down 30 bps from 14.5% to 14.2% in September 2024 while the share is down 460 bps yoy. Finally, let us turn to liquid / money market funds. Their share fell 70 bps from 12.8% to 12.1% in September 2024 MOM, while it is down 220 bps yoy. When corporates redeem treasury monies, these funds are hit hard.
- On a yoy basis, the liquid fund share has been volatile due to the strong influence of treasury flows on liquid funds. In the case of active longer term debt funds, the issue is the absence of a narrative on debt funds and the uncertainty about the direction of interest rates. Now, the Fed has cut rates by 50 bps, but RBI has maintained status quo in October. However, it is very likely the RBI will take up rate cuts in December 2024 or in February 2025.
- Are individual investors playing a bigger role in mutual fund AUM accretion? There is a distinct shift visible in favour of individual investors. One reason could be the surge in SIP flows and NFO flows in FY25. The young market segment for mutual fund SIPs reflects India’s demographic dividends; which is growing by the day. Another factor is that, falling yields on debt funds is also pushing investors towards equity funds.
- In September 2024, gross SIP flows were at a record high of ₹24,509 Crore; a reflection of retail intensity. Between September 2023 and September 2024, the share of individual investors in the overall MF AUM composition has gone up by 310 basis points from 58.8% to 61.9%. Even on an MOM basis, share of individuals in mutual fund AUM is up 80 bps from 61.1% to 61.9%; as institutional debt flows turned negative in September 2024. Simultaneously, share of institutions and corporates in overall mutual fund AUM has fallen over the last one year from 41.2% to 38.1%. Retail share has held above 60% since December 2023.
- How much have individual investors allocated to various categories of mutual funds like debt, equity, liquids, and ETFs? These ratios have been fairly stable over time. As of September 2024, individual investors have a share of a mere 37% in active debt funds but just 12% in short term money market schemes. These are treasury products with institutional appetite, so low retail share is logical. Individual investors have an imposing 88% market share of equity fund assets. However, individuals have just 11% of passive fund AUM (index funds and ETFs). This could also be attributed to the large share of debt index ETFs and predominance of corporates in passive products. Retail investors are still looking at passive products as a cyclical product to be bought when the active products look too uncertain.
- What about the individual investor’s allocation basket. How much of their corpus has been spread across various asset classes? As of September 2024, individual investors have 87% of their mutual fund asset portfolio in active equity schemes and 9% in active debt funds. Liquid funds at 2% and ETFs at 2% are fairly insignificant. What about non-individual investors? Institutions and corporates have 28% of their corpus in liquid funds, 30% in ETFs / FOFs, 23% in longer active debt funds and 19% in active equity funds. Among institutional investors, the passive preference is more pronounced.
As of the close of September 2024, overall assets of mutual funds in India (AAUM) has grown by 42.29% yoy. Assets of individual investors in this period grew by 49.82% while the growth in assets of institutional investors was a relatively modest 31.56%.
KEY TRENDS IN MUTUAL FUNDS – FOLIOS AND TICKET SIZES (SEPTEMBER 2024)
Folios are investor accounts unique to an AMC. Folios do not represent unique investors, but are a good barometer of retail intensity.
- There were total of 21.05 Crore folios as of the close of September 2024 of which retail investors accounted for nearly 91.4% of the total folios. In addition, HNIs accounted for 8.0% of the folios while institutions accounted for the balance 0.6% of the total folios. These ratios have also been stable over last few quarters. However, the retail share of folios comes down sharply when we look at active debt funds. Here, retail investors account for just 68.7% of the folios, while HNI investors account for 29.0%. HNIs also have a high share of folios of liquid funds (20.1%) and hybrid funds (24.0%). In fact, Hybrids are structured for HNIs, with their complex asset allocation mix and their favourable tax treatment for individuals.
- Here is a longer term perspective. Between March 2009 and September 2014, mutual fund folios contracted from 4.76 Crore to 3.95 Crore due to persistent outflows from equity funds. However, between September 2014 and September 2024, the number of mutual fund folios have jumped from 3.95 Crore to 21.05 Crore. That is a jump of 433% in folios since the year 2014. The financialization of savings is clear when you see folios have grown at CAGR (compounded annual growth rate) of 18.2% since Sep-2014.
- There are two takeaways on folios and retail holding period. Let us look at average ticket size for equity and debt products. For equity funds (predominantly a retail product), the average ticket size stands at ₹2.08 Lakhs, which is nearly 20% higher on a yoy basis. In the case of debt funds, the average ticket size is at ₹17.28 Lakhs, which is about 10% higher on a yoy basis. The net AUM of Indian mutual funds at ₹67.09 Trillion is spread across 21.05 Crore folios, giving a per folio ticket size of ₹3.19 Lakhs.
- There is a general presumption that retail investors tend to be less patient about investments. However, that may be a myth and not borne out by actual data. The data paints a different picture of retail stickiness. Unlike the popular perception, retail investors are not myopic in their approach to equity funds. As per data for September 2024, retail investors hold 54.7% of equity fund assets for more than 2 years (sharply higher over last year). This ratio was just 43.7% in 2022. Interestingly, while 54.7% of the equity assets have been held for more than 24 months, the share of patient investing is much higher at 59.1% in the case of retail investors.
The surge in the individual investor share is linked to SIP flows and NFO flows, while the stickiness is on account of the lessons learnt post the pandemic. One of the narratives that became evident during the pandemic is that there is a lot of wisdom in just persisting with your SIPs. Over time, the rupee cost averaging feature of SIPs would ensure that you get more value when markets rise and more units when the markets fall. It is like a case of “Heads you win; and tails you don’t lose.”
KEY TRENDS IN MUTUAL FUNDS – GEOGRAPHICAL MIX (SEPTEMBER 2024)
How are cities and towns contributing to the mutual fund growth story? We specifically look at the story of big cities versus small towns and emerging cities.
- The mutual fund market is divided into T30 (top-30) cities and B30 (cities beyond top-30). If you compare September 2024 with August 2024, total T30 assets are higher by 2.85% at ₹55.41 Trillion. Total assets of B30 centres increased by 3.54% from ₹12.16 Trillion in August to ₹12.59 Trillion in September 2024. To remove the overall institutional impact, we only look at the share of individuals. In September 2024, the B30 cities accounted for 26.94% of individual assets an increase of 7 bps compared to the previous month of August 2024. This also meant that the share of individuals in the top-tier T-30 cities fell from 73.13% to 73.06%. Institutional assets are concentrated in large cities like Mumbai, Delhi, Bengaluru, Chennai etc; so, the picture would be skewed.
- SEBI banned entry loads in 2009 and introduced Direct schemes in 2013. However, while 45% of the overall assets came through the Direct route, only 24% of the retail investors money came through the Direct route. HNIs are slightly better at 27%. Clearly, retail investors are not making the most of the facility of direct investing available to them. Probably, they fell more comfortable being advised by the broker than the DIY approach.
In the last few months, the AMFI monthly trend report has shown a shift of retail assets from beta assets to alpha assets; and that trend has only got magnified. For now, the interest in beta assets is still cyclical. Nevertheless, it looks like the intense retail investor participation in equities in general and equity mutual funds in particular is here to stay!