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The investor interest in local mutual funds remains upbeat despite the surge in equity indices to record highs recently. According to data from the Association of Mutual Funds of India (AMFI), in May 2024, equity mutual funds saw sharp surge in inflows which hit record high of Rs 34,697 crore. The latest reading marks an 83.42% increase from the previous month. Inflows into open-ended equity funds continued their winning streak, remaining in the positive zone for the 39th consecutive month. It is remarkable to note that domestic investors maintained their appetite towards the equity mutual fund investing ahead of a key election outcome in first week of June 2024. The data from AMFI showed that overall mutual fund industry saw an inflow of Rs 1.1 lakh crore, a drop from April's Rs 2.4 lakh crore surge. Investment through systematic investment plans (SIPs) also spiked to Rs 20,904 crore in May, rising from Rs 20,371 crore in April and hitting another fresh monthly high.
This remarkable surge in equity mutual fund inflows comes after a slight slump in April 2024, where inflows had declined by 16.42% to Rs 18,917.08 crore. A significant driver behind the surge in net investments into open-ended equity funds was the robust performance of sectoral and thematic funds. These funds witnessed net inflows of Rs 19,213.43 crore in May, reflecting investors' interest on a continued basis. The smaller-cap funds continued to attract strong investor interest. Small-cap and mid-cap funds saw notable net inflows of Rs 2,724.67 crore and Rs 2,605.70 crore, respectively.
However, investor interest in large-cap funds remained tepid. The category witnessed modest net investments of Rs 663.09 crore during the month.
In case of fixed-income investments, there was a large scaled drop in net inflows, which plunged by 77.73% on month to Rs 42,294.99 crore in May 2024. However, amidst this decline, debt funds experienced robust inflows, particularly within the liquid fund category, where investments surged to Rs 25,873.38 crore.
The hybrid fund category, known for its diverse asset allocation spanning equity, debt, and commodities, witnessed substantial net inflows totaling Rs 17,990.67 crore. Notably, the arbitrage fund category stood out with remarkable buying activity, attracting net inflows amounting to Rs 12,758.12 crore.
Additionally, other schemes also saw positive traction, with index funds receiving net inflows of Rs 4,490.35 crore, while gold exchange-traded funds (ETFs) witnessed good performance, totaling Rs 827.43 crore. A total of 9 open-ended schemes were introduced, collectively amassing a sum of Rs 10,140 crores.
AUM up 36.44% on year May 2024
Assets managed by the Indian mutual fund industry have increased from Rs. 42.95 lakh crore in May 2023 to Rs. 58.60 lakh crore in May 2024. That represents 36.44% increase in assets over May 2024. The proportionate share of equity-oriented schemes is now 58.6% of the industry assets in May 2024, up from 51.3% in May 2023. The proportionate share of debt-oriented schemes is 15.7% of industry assets in May 2024, down from 20.3% in May 2023. There was a decrease in ETF market share from 13.0% in May 2023 to 12.7% in May 2024.
Individual investors now hold a relatively higher share of industry assets, i.e. 60.6% in May 2024, compared with 57.7% in May 2023 Institutional investors account for 39.4% of the assets, of which corporates are 95%. The rest are Indian and foreign institutions and banks. Equity-oriented schemes derive 88% of their assets from individual investors (Retail + HNI) Institutional investors dominate liquid and money market schemes (88%), debt-oriented schemes (62%) and ETFs, FOFs (89%).
Outlook:
The Securities and Exchange Board of India (SEBI) has introduced new regulations impacting investments by passively managed mutual fund schemes in the group companies of their sponsors. These changes aim to streamline and enhance the investment strategies of passive funds such as Exchange Traded Funds (ETFs) and index funds.
Under the new rules, no mutual fund scheme is allowed to invest more than 25% of its net assets in the listed securities of group companies of the sponsor. However, equity-oriented ETFs and index funds that follow widely tracked and non-bespoke indices are granted some leeway. They can now invest up to 35% of their net asset value (NAV) in the sponsor's group companies, provided the investments align with the weightage of the constituents of the underlying index.
SEBI also noted that widely tracked and non-bespoke indices are defined as those tracked by passive funds or serving as primary benchmarks for actively managed funds with collective assets under management (AUM) of Rs 20,000 crore and above. SEBI has identified 21 such indices based on AUM as of June 30, 2024, including popular benchmarks like the Nifty 500, Nifty 50, Nifty Midcap 150, and BSE 500.
Meanwhile, the value of assets held by individual investors in mutual funds increased from Rs.24.77 lac crore in May 2023 to Rs. 35.54 lac crore in May 2024, an increase of 43.48%. The value of Institutional assets has increased from Rs.18.18 lac crore in May 2023 to Rs.23.06 lac crore in May 2024 an increase of 26.86%.
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