The mutual fund industry maintained its growth momentum in September 2023 despite some moderation in inflows into equity funds. Total assets under management (AUM) of the industry stood at Rs.46.6 trillion at the end of September, largely unchanged from August 2023 levels.
Equity and equity-oriented funds, which make up the largest component of mutual fund AUM, rose 2.5% month-on-month (MoM) to Rs.21 trillion in September. This growth was fueled by the 2% MoM increase in market indices during the month. However, net inflows into equity funds dropped to Rs.155 billion in September compared to Rs.221 billion in August, as redemptions picked up.
Equity fund sales declined 5.2% MoM to Rs.461 billion in September. The pace of redemptions also accelerated 15.4% MoM to Rs.305 billion during the month. Overall, the mutual fund industry continues to receive robust inflows through the systematic investment plan (SIP) route, with contributions touching a new high of Rs.160.4 billion in September. But, lumpsum investments seem to have moderated last month.
Sectoral Trends: In terms of sectoral allocation, weights increased MoM for utilities, NBFCs, PSU banks, automobiles, healthcare, telecom and cement. Weights declined for private banks, technology, consumer, oil and gas and chemicals. The utilities sector hit a 35-month high weightage of 3.8% in September, while healthcare touched a 17-month high weight of 6.8%.
Among stocks, NTPC, L&T, Bharti Airtel, Coal India and Axis Bank saw the largest increase in value MoM. This highlights the move towards high dividend yield stocks against the backdrop of surging bond yields. Exposure to private banks moderated for the third straight month in September. The weight of oil and gas also hit a multi-year low during the month.
Debt Funds: The AUM of income funds declined 1.3% MoM to Rs.11.5 trillion in September 2023. Investors moved some money out of short-duration, corporate bond and banking & PSU debt funds last month amidst rising bond yields. The category saw net outflows of Rs.52 billion in September.
However, liquid funds, which make up 34% of debt fund AUM, saw a 4.2% MoM drop in AUM to Rs.15.8 trillion in September. The AUM of gilt funds also declined by 8.6% MoM during September. On the other hand, investors continued to pour money into floating rate and ultra short-duration funds that stand to benefit from rising interest rates.
Other Categories: The AUM of exchange traded funds (ETFs) tracking various indices rose by 2.4% MoM to Rs.662 billion in September, led by continued flows into Nifty ETFs. Gold ETFs also saw their assets rise by 1.6% MoM to Rs.199 billion, tracking the uptick in gold prices.
Arbitrage funds saw their AUM expand 7.4% MoM in September to Rs.1.5 trillion. These funds gained from the divergence in cash and futures prices during the month. Further, balanced advantage funds, which dynamically manage equity and debt allocation, grew their AUM by 4.3% MoM to Rs.2.4 trillion in September.
India’s mutual fund industry showed resilience amidst global uncertainty and domestic rate hikes. The growth was well spread out across categories. Equity funds continue to gain from SIP flows while debt funds remain exposed to intermittent redemptions. However, investors are now migrating towards categories that can ride out volatility and deliver stable returns.