The mutual fund industry saw its total asset under management (AUM) hitting Rs 27 lakh crore as of November-end, from Rs 23.59 lakh crore a year ago, Association of Mutual Funds in India (AMFI) data showed on Monday.
That represents a 15 percent growth in assets year-on-year (YoY). On a month on month basis, it rose by 3 percent.
This is indeed remarkable, but the devil lies in the detail. The asset growth in November has been driven mainly by inflows into debt funds. Equity funds, a keenly tracked data point, recorded a significant drop in inflows.
Is it a matter of big concern? Not yet. We sliced the monthly numbers and came across a few interesting observations.
Equity flows may have tapered off, but the underlying trend is very positive, signaling that cyclicality in equity inflows, inherent to the MF industry, has largely reduced. Though the fortune of the industry will always be linked to vagaries of capital markets, the structural factors are driving growth.Key takeaways
Net inflows into equity MFs, including closed-ended schemes, read a mere Rs 933 crore compared to Rs 6,015 crore in the previous month.
The monthly net equity inflows have come off significantly from the peak of Rs 20,308 crore in November 2017. However, the underlying trend continues to be very encouraging. What makes us think so?Fresh investment holds up
Gross inflows into equity funds in November remained almost stable compared to October. It was increase in redemptions that led to weak net inflows (see the table).
The Nifty touching an all-time high in November could have triggered some profit booking and withdrawals from equity funds. The increased redemptions can also be attributed to fading equity outlook amid domestic macroeconomic concerns and muted global cues. With fresh investments still flowing into equity funds, there should be no room for panic.SIP flows – A silver lining
Investment in equity funds through systematic investment plans (SIPs), which are relatively sticky, came as a source of comfort, with Rs 8,273 crore as SIP funds mobilised in November. Though the overall equity flows have been on a shaky pitch, the MF industry has not seen rise in cancellation of SIPs.
The stability in SIP contribution has been the key success story of MFs. Going by the current SIP monthly run rate of around Rs 8,000 crore, the industry will receive equity inflows of at least around Rs 1,00,000 crore in 2019-20, which is sizeable.Individual investors step up
Various investor awareness initiatives undertaken by AMFI seem to have paid off, given higher retail participation through SIPs. Very few in the country would have related to the tagline “Mutual funds sahi Hai”
10 years ago. Back then, not many even believed in mutual funds as an investment option.
SEBI’s (Securities and Exchange Board of India) reforms and regulations such as introduction of direct plans and capping of fees charged for investors are showing results too, adding to the lure of MFs among more small retail investors.
Today, MFs have become a mainstream investment vehicle, with households increasingly preferring MFs to bank deposits, which had been a natural choice to park one’s savings. Numbers speak for themselves. Individual investors now hold a higher share at around 53.9 percent of total MF assets as of October-end, according to AMFI. The gradual but steady shift of household savings away from physical to financial assets is clearly visible.
Overall, the monthly flows in November highlight one thing. Not just the asset management industry, but retail investors who historically invested at peak of market and withdrew funds following a year of negative returns have attained maturity.For more research articles, visit our Moneycontrol Research page