Active equity funds attracted ₹74,000 crore in July-September quarter, MOAMC study

According to the study, passive funds have grown significantly in their AUM, rising from a modest 1.5 percent in 2015 to over 17 percent. However, equity funds held the largest share at 54 per cent, followed by debt at 32 per cent, hybrid at nine per cent, with the remaining five per cent made up of multi-asset, international, commodity and solutions funds -directed.

This is best illustrated by the strong performance of active equity funds, which saw significant net inflows of approx. 74,000 crore during the last quarter from July to September. On the other hand, passive equity funds attracted net inflows 900 crore during the same period.

The study also shows that arbitrage funds are growing in popularity, likely because investors see them as a tax-efficient alternative to liquid funds. Arbitrage and broad-based categories ensured most of the net inflows into equity funds during the quarter, accounting for over 80 per cent of the market share.

In the equity segment, the study noted significant net inflows into active and passive equity, with significant attention paid to the broad-based category. The Employees’ Provident Fund Organization (EPFO) was identified as the main contributor to these inflows.

Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company, said, “Currently, there is no comparable data on net flows available to objectively and easily compare Active and Passive funds across different categories. Our aim with this report is to provide insight into the changing dynamics and emerging trends within the Mutual Funds industry over the past quarter. We believe this will be very helpful for investors and investment advisors to make informed decisions.”

The main objective of the study is to offer insights into investor preferences within the mutual fund industry by comprehensively analyzing the estimated net flows across different categories of mutual fund schemes. The results show a total net inflow of 51,000 crore into mutual funds, spanning all categories and asset classes, during the last quarter. Of this amount, approx 39,000 crore flowed into active funds, and approx 12,000 crore went into passive funds.

Mahavir Kaswa, Head of Research (Passive Funds), Motilal Oswal Asset Management Company Said, “We have developed our proprietary 5-level classification model for mutual fund schemes, based on aspects such as investment style, asset class, category within an asset class, sub-type within each category, and mode/format of investment. This helps us analyze the entire industry with a high level of granular data and draw valuable insight into where the investor’s money is really flowing.”

In addition, 29 new schemes were introduced during this period, accumulating roughly 16,000 crore in assets under management (AUM). In particular, the data in the study shows how the highest net inflows have occurred from broad-based funds, which represents a total estimate 42,000 crore, and ELSS and focused funds combined for net outflows of approx. 2,000 crore. Taking a broader perspective, three asset management companies (AMCs) achieved almost half of the quarterly net inflows, while one AMC accounted for two-thirds of the quarterly net outflows.

The study also highlighted the growing demand for active multi-cap funds, which has come about with the introduction of two new fund offerings (NFOs). 2,000 crore out of total net inflows 8,000 crore during the second quarter of the financial year. Investors showed a strong preference for passive large-cap funds, with this category attracting around 90 percent of all net inflows, while active large-cap funds saw outflows. Other passive categories such as mid-cap and small-cap funds also received significant net inflows, especially considering their relatively smaller AUM.

In addition, hybrid funds had the highest cumulative outflows, overall 26,000 crores from December 2018. However, balanced advantage funds (BAFs) it emerged as a saving grace, enabling fund managers to offer flexibility in asset allocation and maintain consistent cash flows, thanks to the aggressive promotion of various AMCs.

The research study also noted that liquid and overnight funds accounted for more than 90 percent of the net outflows within the constant maturity category, followed by ultra-short and short-term funds. The majority of these net outflows occurred during August and September in 2023.

During the July-September quarter, outflows from the international funds category were observed across different styles and categories. This was mainly due to several factors, including the mutual fund industry exceeding its payout limit set by the RBI, volatility in international markets, and the recent performance of the Indian market. In addition, recent changes to the taxation rules for international funds have contributed to a decline in investor confidence.

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Updated: 07 November 2023, 05:57 PM IST

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