Five key highlights for equity markets based on latest AMFI numbers

The total folio count reached an all-time high of 19.84 crore, an increase of 3.19 percent from June’s 19.1 crore.

Thematic equity funds continued to find favour among investors in July even as there was a decline compared to June numbers, latest data from Association of Mutual Funds India (AMFI) revealed.

The category saw significant inflows of Rs 18,386 crore in July, primarily driven by two new fund offers (NFOs) -- Edelweiss Business Cycle Fund and ICICI Prudential Energy Opportunities Fund -- which garnered Rs 9,790 crore, accounting for over 50 percent of the total inflows into this category.

The number of NFOs made all the difference in terms of inflows between the two months, said Mayukh Datta, Chief Business Officer at ITI AMC. In June, thematic funds received about Rs 22,351 crore, with Rs 13,000 crore coming from around nine NFOs. In July, the category received Rs 18,386 crore, with nearly Rs 9,800 crore coming from these NFOs.

Here are some of the other key highlights from this month’s numbers:

1. Industry assets reach all-time high:

The total assets under management (AUM) of the industry touched an all-time high of Rs 64.97 lakh crore as of July 31, 2024, up from Rs 61.16 lakh crore the previous month. “The mutual fund industry has demonstrated positive growth with retail investors consistently embracing mutual funds as a reliable investment avenue. It’s evident that mutual funds have become an integral part of retail investors' financial strategies,” AMFI Chief Executive Venkat Chalasani said.

2. Equity Mutual Funds AUM hit all time high; inflows decline:

Equity mutual funds hit a record high of Rs 29.34 lakh crore, constituting 45 percent of the industry's AUM. The net inflows for July were Rs 37,130 crore, slightly lower than June's Rs 40,608 crore. Sectoral and thematic funds led the segment with assets of Rs 4.21 lakh crore.

Abhishek Tiwari, Chief Business Officer at PGIM India AMC noted that the highlight of this month’s numbers has been equities, which continue to show strong flows despite a slight month-on-month decline. The gap between sector/thematic funds and multi-cap categories, he adds is significant.

“Although overall equity streams are at record highs, large caps have seen declines in inflows. This trend reflects the performance differential between small, mid, and thematic sectors versus large caps. Since April, fund houses have noted a shift in preference towards multi-cap and large-mid cap funds. Investors seeking vigilant exposure are leaning towards these categories, while trend followers continue to allocate based on past returns,” he explained.

In the category, inflows into large-cap funds fell 31 percent from June to Rs 670.12 crore, while mid-cap and small-cap funds saw a slowdown in inflows to Rs 2,109.20 crore and Rs 1,644.22 crore in fresh investments.

On mid and small cap numbers, Melvyn Santarita, Analyst – Manager Research, Morningstar Investment Research India noted that while these are still substantial numbers for these segments, the net inflows towards both these segments have been tapering down perhaps given the concerns on valuations.

“It is important for investors to note that mid and small cap segments are highly volatile. While they can give exceptionally high return in up markets, they can fall equally hard in down markets. Therefore, investors should take exposure in these funds in line with their risk appetite and invest only with a long-term investment horizon," he said.

Fisdom's Nirav Karkera added that in large caps there is a lot of value being seen in large cap indices and ETFs. "Some money is likely being diverted to large cap indices and ETFs, which could affect large cap funds specifically. While money is moving toward large caps, it may not be through the large cap fund route," he further said.

3. Systematic Investment Plan (SIP) contributions hit a record high:

In July, SIPs continued to gain and reached a record-high of Rs 23,332 crore with a total of 9.3 crore SIP accounts. This was the highest monthly addition, with 35.29 lakh new accounts. The overall SIP AUM reached Rs 13.09 lakh crores, representing 20 percent of the industry's assets.

While investors increasingly moving towards STPs and SIPs is not new, Karkera noted that what could also be driving investors towards SIPs is that alternate sources of investment and savings are not looking as lucrative.

4. Folio Count reach an all-time high:

The total folio count reached an all-time high of 19.84 crore, an increase of 3.19 percent from June’s 19.1 crore. July saw the addition of 73 lakh folios, with over 97 percent coming from equity-oriented schemes and passive funds.

Speaking about increase in number of folios, Tiwari said it could be due to a number of factors. First, the COVID-19 pandemic provided time for people to reassess their financial plans, and strong capital market performances further influenced their decisions. Standardisation and better understanding of scheme categories have also played a role. Additionally, many shifted from traditional savings methods to capital markets, including mutual funds and SIPs. “SIPs have become a distinct asset class for many, aligning well with regular income patterns and is a disciplined way of investing,” he explained.

5. Gold ETF inflows reach all-time high:

Gold ETFs reached an all-time high with net inflows of ₹1,337 crore in July, up from Rs 726 crore in June. "This surge was likely influenced by the reduction in customs duty on gold from 15 to 6 percent," said Chalasani.

ITI's Datta added that apart from the budget, there was also the factor that the US Fed had chosen to not cut its interest rates. "That also led to people buying gold because they would assume that because of not cutting rates, the US economy could face some headwind. So therefore, it is better to buy gold where it would be still safer," he said.

Kartik Jain, CEO and MD of Shriram AMC adds that sovereign gold bonds which act as an important avenue to invest also face uncertainties. "Gold ETFs, being in the digital format, are a better investment option compared with physical gold or jewellery that also includes making charges," Jain added.

Passive funds' AUM grew to Rs 10.95 lakh crore, making up 17 percent of the total industry AUM. Of this, Index funds led this growth, with inflows of Rs 8,020 crore, while other ETFs saw inflows of Rs 5,787 crore.

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