At Rs 1.85 lakh crore, mutual funds see highest quarterly inflows in 4 years in April-June

Assets under management (AUM) of the industry stood at Rs 44.13 lakh crore as of June end, up 13 percent over the previous quarter.

The first quarter of financial year 2024 started on a positive note, as open-ended mutual funds saw net inflows of Rs 1,84,789 crore, the highest in four years, with the fixed-income segment witnessing the lion’s share of inflows.

As per the latest Morningstar India report, flows in open-ended funds started on a strong note during June quarter, with net inflows of Rs 1,23,613 crore in April, which dipped to Rs 59,879 crore in May and ended with a disappointing Rs 1,295 crore of inflows in June.

Meanwhile, assets under management (AUM) of the industry stood at Rs 44.13 lakh crore as of June end, up 13 percent over the previous quarter.

Flows breakdown

As per the report, net flows into equity funds have been positive over the past nine quarters even as the momentum has been dropping since the last few quarters. In the June quarter, net flows fell significantly to Rs 18,358 crore, compared with Rs 48,766 crore inflows in the previous quarter.

Also read | Why a separate healthcare fund is a must for those living with Parkinson’s, Alzheimer’s diseases

The total AUM of equity funds as of June stood at Rs 17.44 lakh crore, up by a sharp 15 percent since the last quarter. Equity funds form about 40 percent of the total open-ended fund universe.

Weightwise, both the largecap and flexicap categories continued to lead the AUM split with approximately 15 percent and 16 percent, respectively, followed by midcap with 13 percent.

On the other hand, net flows in fixed-income funds have been quite disappointing in the last few quarters. But the first quarter of FY24 saw net inflows of Rs 1.39 lakh crore, the second-highest quarterly inflows for the asset class.

Also read | Mutual Fund Folio decoded: How to streamline and manage your investments effectively

After six consecutive quarters, the asset class finally managed to turn the corner and see net inflows.

Only four out of 16 fixed-income categories witnessed net outflows in the quarter ended June 2023. The liquid fund category (Rs 79,908 crore) and money market fund category (Rs 29,519 crore) managed to garner the lion’s share when it came to net flows during the quarter.

M-cap trend

The smallcap category saw net inflows of Rs 10,937 crore in the first quarter, the highest-ever quarterly inflows for the category. This was also the ninth consecutive quarter in which the category witnessed net inflows. The smallcap category witnessed the highest net inflows for the open-end equity asset class during the quarter.

The AUM for the smallcap equity category hit its peak of Rs 1.68 lakh in the quarter ended June.

“Strong consistent net flows and favourable market conditions propped up the assets under management for the smallcap category to reach new heights,” Morningstar India said in the report.

Also read | How Recurring Deposits are a smart option without risking the capital

Largecap funds saw net outflows worth Rs 3,359 crore during the quarter as against net inflows of Rs 1,981 crore in the previous quarter.

Next, the midcap category saw net inflows for the 10th consecutive quarter, wherein it managed to garner inflows of Rs 4,735 crore. Interestingly, during the quarter, the midcap category received the second-highest net inflows in the open-end equity asset class, only behind the smallcap category.

New kids on the block

Cumulatively, about 40 index funds were launched in the first half of calendar year 2023; of these, there were 31 fixed-income index funds and nine equity-based index funds.

In the quarter ended March 2023, passive index funds/target maturity funds garnered Rs 26,269 crore. The spike in flows in this segment could be attributed to the change in tax laws for the fixed-income mutual funds from fiscal year 2023-24, which takes away the indexation benefit offered to investors.

Also read | How much money do you need to retire comfortably?

Investors, therefore, largely chose to invest in these funds to avail the benefit of indexation before the end of the financial year.

With the change in the fiscal year from April, the amount of fixed-income index funds in the June quarter was muted.

In terms of fund houses, SBI Mutual Fund launched two open-end funds during the first half of 2023, namely SBI S&P BSE Sensex Index and SBI Dividend Yield Fund; the cumulative AUM of these two funds stands at Rs 4,583 crore, which is the highest among the launched funds.

HDFC, on the other hand, launched 13 funds, and the cumulative AUM of these funds stood at Rs 3,218 crore.

The overall open-ended mutual fund industry was well-diversified, and weightage-wise equity funds comprised around 39 percent of the total industry AUM, followed by fixed-income funds with 31 percent. The allocation/hybrid, solution, and other categories have approximately 12 percent, 1 percent, and 18 percent weightage, respectively.