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

According to the study, passive funds have seen a substantial increase in their AUM, surging from a modest 1.5 per cent in 2015 to over 17 per cent. Nevertheless, equity funds dominated with the largest share at 54 per cent, followed by debt at 32 per cent, hybrid at nine per cent, and the remaining five per cent comprising multi-asset, international, commodity, and solution-oriented funds.

This can be best elucidated by the strong performance of active equity funds, which witnessed substantial net inflows of approximately ₹74,000 crores during the last quarter from July to September. Passive equity funds, on the other hand, attracted net inflows of ₹900 crores during the same period.

The study also indicates a rising popularity of arbitrage funds, likely due to investors perceiving them as a tax-efficient alternative to liquid funds. Arbitrage and broad-based categories secured the majority of 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 substantial net inflows into both active and passive equities, with the broad-based category receiving significant attention. The Employees Provident Fund Organisation (EPFO) was identified as the primary contributor to these inflows.

Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company, said, “Currently, there is no comparable data of net flows available to make objective and easy comparison between Active and Passive funds across different categories. Our aim with this report is to present a snapshot of the changing dynamics and emerging trends within the Mutual Funds industry in the past quarter. We believe this will be very helpful for investors as well as investment advisors to make informed decisions.”

The primary objective of the study is to offer insights into investor preferences within the mutual fund industry by conducting a comprehensive analysis of the estimated net flows across various categories of mutual fund schemes. The findings reveal a total net inflow of ₹51,000 crore into mutual funds, encompassing all categories and asset classes, during the last quarter. Out of this amount, approximately ₹39,000 crore flowed into active funds, while around ₹12,000 crore entered passive funds. 

Mahavir Kaswa, Head of Research (Passive Funds), Motilal Oswal Asset Management Company said, “We have developed our own proprietary 5-level classification model for mutual fund schemes, based on aspects like style of investing, asset class, category within asset class, sub-type within each category, and route/format of investing. This helps us to analyse the entire industry with a high level of granular detail and draw meaningful insights into where investor’s money is actually flowing.”

Additionally, 29 new schemes were introduced during this period, accumulating roughly ₹16,000 crore in assets under management (AUM). Notably, the data in the study highlights how broad-based funds experienced the highest net inflows, totalling an estimated ₹42,000 crore, whereas ELSS and focused funds combined for net outflows of approximately ₹2,000 crore. Taking a broader perspective, three asset management companies (AMCs) secured nearly half of the quarterly net inflows, while a single AMC accounted for two-thirds of the quarterly net outflows.

The study also brought to light the increasing popularity of active multi-cap funds, which gained momentum with the introduction of two new fund offerings (NFOs) amassing ₹2,000 crore out of the total net inflows of ₹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 approximately 90 per cent of all net inflows, while active large-cap funds saw outflows. Other passive categories such as mid-cap and small-cap funds also received substantial net inflows, especially considering their comparatively smaller AUM.

Additionally, hybrid funds witnessed the highest cumulative outflows, totalling ₹26,000 crores since December 2018. However, balanced advantage funds (BAFs) emerged as a saving grace, enabling fund managers to offer flexibility in asset allocation and maintain consistent cash flows, thanks to the aggressive promotion by various AMCs.

The research study also noted that liquid and overnight funds were responsible for over 90 percent of the net outflows within the constant maturity category, with ultra-short and short-duration funds following suit. 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 primarily due to several factors, including the mutual funds industry surpassing its outward remittance limit set by the RBI, volatility in international markets, and the recent performance of the Indian market. Furthermore, recent alterations in the taxation rules for international funds have also contributed to a decrease in investor confidence.

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Updated: 07 Nov 2023, 05:57 PM IST