Colour of mutual fund flows in October 2022

The AMFI announced the mutual funds flow data for the month of October on 10th November. The trend was almost a mirror of the previous months with clear inflows into active equity funds as well as into passive index funds and ETFs. At the same there outflows from debt funds and hybrid funds. AMFI discloses such data category wise; both in terms of rupee flows and also in terms of the number of folios. Overall, the net inflows into mutual funds stood at Rs14,047 crore for the month of October. Here are some key takeaways from the mutual fund flow data for the month of October 2022.

What we read from the mutual fund flow data for October 2022?

Here are some of the major data observations that we read in the AMFI report.

1. For October 2022, the systematic investment plan (SIP) flows scaled an all-time high of Rs13,041 crore. The new fund offerings (NFOs) are gathered steam after the interim break as these NFOs collected Rs5,439 crore in October. The NFO inflows were dominated by sectoral funds and index funds.
    

2. The overall AUM of the mutual fund industry as of October 2022 stood at Rs39.50 trillion. In the last 12 months, the overall range of AUM has been quite narrow, but there are some interesting trends. In last 12 months, the AUM of debt funds has fallen from 14.31 trillion to Rs12.45 trillion. In the same period, the AUM of active equity funds increased from Rs12.97 trillion to Rs15.22 trillion.
    

3. The alternate asset classes like hybrid funds, passive funds and solutions funds have emerged as a distinct asset class. In the last 1 year, the AUM of these alternate asset class funds has increased from Rs9.41 trillion to Rs11.58 trillion. Now let us move to the specific categories and the flow drivers.
    

4. In October, debt funds overall saw net outflows of Rs2,818 crore. While rising rates and bond yields are still a worry, the pressure of treasury withdrawals seen in September had abated. That explains why debt funds saw positive inflows into liquid funds to the tune of Rs19,085 crore.
    

5. Several debt funds saw heavy net outflows in October 2022. Some of the major categories seeing outflows include Overnight Funds Rs7,505 crore, Low Duration Funds Rs2,660 crore, short duration funds Rs2,466 crore and Floater Funds Rs2,444 crore.
    

6. Equity funds in October 2022 got a leg up from SIP flows and from NFO flows as overall net inflows stood at Rs9,390 crore for the month. In October 2022, sector funds led the way with Rs2,686 crore of inflows. Among other segments, small cap fund flattered with inflows of Rs1,582 crore and mid cap funds with Rs1,385 crore, as investors desperately searched for Alpha.
    

7. The better story of equity fund flows is the folios story, which captures the retail spread. Equity folios touched an all-time high of 932.34 lakh folios out of total mutual fund folios of 1,390.78 lakhs. That translates into 67.04% share of overall folios.
    

8. Let us now move to the alternate categories. Hybrid funds saw outflows of Rs2,819 crore in October 2022, and this had 2 sub-stories. For the first time in more than 2 years, the balanced advantage funds (BAFs) saw net outflow, albeit small, of Rs454 crore. However, bigger pressure on hybrid funds came from the arbitrage funds that saw outflows of Rs2,470 crore in October 2022.
    

9. Passive funds were again the big story of October 2022, as it witnessed the best category inflow of Rs10,261 crore with more investors looking at lower cost alpha. This category was driven by index funds getting inflows to the tune of Rs5,076 crore while the equity & debt index ETFs saw inflows of Rs4,845 crore in October 2022.
    

10. Last, but not the least, despite the global uncertainty and the fear of recession, Gold Funds and International FOFs have only seen marginal inflows in October 2022. International funds are slightly shaky due to recession fears. The reason gold is still not being preferred is that it is negatively correlated with the dollar and the dollar index is still jumping from strength to strength.

What are the messages we carry away from the MF flows data?

Broadly, there are some messages from the flows that go beyond mere data. Firstly, the good news is that the equity fund flows are not so much a function of market volatility and market churn, as it used to be in the past. Thanks to the rapid growth of SIPs, investors are now making longer term commitments to the equity market. That is the positive side of the entire MF flow story.

It looks like debt funds are too satiated with the old models and hence fund managers are not taking sufficient risk. That is the big risk, and one reason could be that fund managers are playing it safe after the Templeton saga. However, that is leading to rapid depletion in debt fund AUMs. But, beyond all these concerns, the one big news is that fund classes like hybrids and passive funds are becoming significant in terms of folios and AUM. They are finally emerging as a distinct asset class in mutual funds.