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– By Nityanand Prabhu
If the current industry trends are anything to go by, the Indian mutual fund (MF) industry’s assets under management (AUM) are expected to reach the Rs 100-lakh-crore mark in the near future. The historical data has shown that the doubling of assets doesn’t need a long span of time. In the past fiscal (FY24), the MF industry saw a sharp jump in their AUM to a record Rs 53.40 lakh crore compared with Rs 39.42 lakh crore in FY23, which is a gain of 35%. The AUM stands at Rs 57.26 lakh crore as of April 30 this year.
If we look at the growth trajectory, as per AMFI it is evident that the AUM growth is exponential. The assets had grown more than six-fold — from Rs9.45 lakh crore in April 2014 to Rs 57.26 lakh crore in April 2024 –in a decade. The AUM had crossed the milestone of Rs 10 lakh crore in May 2014, and in three years it doubled to Rs 20 lakh crore in August 2017. Again, in three years, it touched Rs 30 lakh crore in November 2020, and in less than four years it reached Rs 57.26 lakh crore.
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The total number of folios (MF accounts), as on April 30, stands at Rs 18.15 crore. Investor’s preference to Systematic Investment Plan (SIP) continues to rise with monthly net inflows touching Rs 20,371 crore in April this year. In FY24, the net SIP inflows were at Rs 1.99 lakh crore compared with Rs 1.55 lakh crore in the previous fiscal year. Currently, domestic MFs
have about 8.70 crore SIP accounts through which investors regularly invest in MF schemes.
A significant factor that triggers the AUM growth is the positive sentiments on the bourses. Ostensibly, domestic households are keen to join MF schemes as they want to increase their capital market exposure to cash in on the market surge. The three major categories of MF — equity, hybrid and solution-oriented schemes – are leading the growth and collectively
account for 58% of the assets at the end of the past fiscal year.
For prospective investors, understanding how various asset classes and fund categories performed in the past is very crucial to navigate the MF landscape. According to AMFI data, equity-oriented schemes were seen as the bellwethers in FY24 and they grew 55% to Rs 23.50 lakh crore due to strong fund inflows and mark-to-market (MTM) gains. This category witnessed net inflows of Rs 1.84 lakh crore in the past fiscal year, up from Rs 1.47 lakh crore in FY23. It also benefited from sharp growth in the underlying equity valuations, leading to higher MTM gains.
Flexi cap was the largest fund category with Rs 3.50-lakh-crore AUM as of March 2024, followed by large-cap funds with Rs 3.14-lakh-crore assets. In growth terms, multi-cap funds saw the highest growth of 85% in the past fiscal year, followed by small-cap funds at 82%.
Sectoral and thematic funds saw the highest inflows during the past fiscal at over Rs 46,000 crore, followed by small-cap category with net inflows of over Rs 40,000 crore. However, the small caps saw marginal outflows recently due to fears of over-valuation, and profit booking.
Hybrid funds crossed the Rs 7-lakh-crore mark in the past fiscal with asset gains of over 50%. According to a recent AMFI report, in the hybrid category, arbitrage funds saw the highest inflow of Rs 90,000 crore during the past fiscal year with assets up by 127%. Investors also adopted other hybrid categories such as multi-asset allocation, equity savings fund, and dynamic asset allocation (balanced advantage funds) categories, registering a growth of 153%, 85% and 30%, respectively. Within the hybrid fund category, dynamic asset allocation funds emerged as the largest category with assets worth Rs 2.50 lakh crore at the close of the past fiscal.
Passive funds also registered a growth in AUM and the segment continued to benefit from the institutional investment flows into exchange-traded funds (ETFs). ETFs, as a category, have assets worth Rs 6.64 lakh crore as of March 2024.
Debt funds saw only a moderate growth of 7% in FY24 and closed with assets worth Rs 12.62 lakh crore. This category also gained in folios as investors retained their confidence in the segment despite the removal of indexation benefit. In terms of asset growth, money market and liquid funds saw the highest absolute asset gain of Rs 40,000 crore and Rs 31,000 crore, respectively. Among other categories, long duration funds saw 45% growth to close with Rs 12,700-crore assets. However, overnight funds were down by 36% in the debt category.
Debt funds may seek more traction after the inclusion of the India government bonds (G-Sec) into the JP Morgan Global EM Bond Index from June this year. The G-Sec inclusion in the Bloomberg’s EM Local Currency Government indices is expected to happen only next year. But both the inclusions may facilitate increased foreign fund flows to the government securities, which may rejuvenate the debt fund market in the country. Another factor for debt funds is India’s falling fiscal deficit. It will further consolidate global investor confidence in the country and strengthen the macro indicators. Notably, the higher dividend payout of Rs 2.11 lakh crore by the RBI may also offer a breather for the Centre to manage deficit in the current fiscal year.
Thus, we may say that MF AUM over the years is set to increase, and we will also get participation of larger audience even from beyond the top 30 cities. Mutual funds will form a big part of the investor’s portfolio in the coming future.
(Nityanand Prabhu is the Executive Director and Business Head of LIC Mutual Fund Asset Management Ltd.)
(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)