What is it?
The total assets under management (AUM) of mutual funds in India crossed the ₹20 trillion mark for the first time ever in August. According to the latest data provided by the Association of Mutual Funds in India (AMFI), the total AUM as on August 31 was pegged at ₹20.60 trillion. To put it in context, the AUM of the fund industry has doubled in the last three years, growing from ₹10.1 trillion in August 2014 to the current ₹20.6 trillion. Total AUM refers to the cumulative value of all the securities held by all the mutual funds of India. There are a total of 47 mutual funds houses in the country. Incidentally, the month of August also saw the highest ever monthly net inflows in equity funds, including equity-linked saving schemes, at nearly ₹20,400 crore. This reflects a 213% year-on-year growth.
How did it come about?
The most obvious reason is the stock market, which, till recently, was touching new highs almost on a daily basis. While the Sensex is currently hovering around the 31,000 mark, it had touched an all-time high of 32,686 during intra-day trades on August 2. A stock market rally does attract more investments in mutual funds that are looked upon as a less risky way of investing in the stock market compared to direct investment into equities, which may lack proper research and due diligence. As a result, increased participation from retail investors and even high net worth individuals pushed the total AUM to a record level. One also needs to remember that systematic investment plans (SIPs) have been a game-changer for the fund industry and inflows through such monthly investments are also at record levels.
Under a SIP, an investor can put in a fixed amount of money in a mutual scheme every month. Net inflows through the SIP route also hit an all-time high of ₹5,206 crore in August.
According to an ICRA analysis, since the beginning of the current financial year (FY18), ₹23,750 crore has come through SIPs, up 44.4% year-on-year. While 8.55 lakh SIP accounts were added every month on an average, average ticket size was ₹3,275 per SIP account, according to the rating agency.
Why does it matter?
Credit should also be given to the Securities and Exchange Board of India (SEBI) for this increase in the AUM, which is a factor of the increased inflows from investors as well.
Over the years, the capital market regulator has taken a tough stand against fund houses to push them beyond the top 15 cities — known as B15 in industry parlance — and increase their geographical penetration. The regulator has allowed mutual funds higher expense ratio — it takes care of the management and administration expenses of the fund house — in the case of B15 cities that account for around 18% of the total AUM.
SEBI has also put in restrictions on the easy institutional money that fund houses were hugely dependent on to increase their respective AUM. According to Morningstar, individual investors’ share in the overall AUM has increased to 48% from 45% a year ago. Interestingly, mutual funds also saw an increase in inflows post demonetisation in November last year as a large section of investors shied away from real estate and gold and started investing in equity through SIPs. Income funds accounted for the largest share within the total AUM at ₹8.58 trillion, or 42% of the total assets of the mutual fund industry. Income funds are debt funds that invest in government securities, corporate bonds and certificate of deposits among other money market instruments. Income funds were followed by equity schemes that account for ₹5.74 trillion, or 28% of the total AUM. Liquid funds had a share of 17% of the AUM, or ₹3.49 trillion. As per SEBI data, the total number of folios in August was pegged at 6.08 crore, 2.4% higher than the previous month. According to ICRA, the growth was primarily due to 10.9 lakh new folios added to the equity category and 2.36 lakh new folios to the balanced category.
What next?
With the recent cuts in bank deposit interest rates, investors are moving towards stock markets through equity and balanced schemes. Balanced funds that invest in a mix of equity and debt products had an AUM of ₹1.28 trillion, or 6% of the overall AUM as on August 31, as per AMFI data.
