For the month of July 2022, the inflow of equity funds and debt funds remained positive. However, the strength of flows into active funds has been relatively muted. This was more than offset by strong inflows into passive funds during the month. On the other hand, selling pressure was visible on hybrid funds, in particular arbitrage funds.

However, there were 2 stories to savor in July. First, despite the volatility, SIP flows in July 2022 were nearly flat at Rs12,140 crore. The second good news is that the NFOs have reopened after a 2 month hiatus. However, as of late July 2022, a number of NFOs are still open, so a clearer picture of NFO flows should emerge when we get the August data.

The overall AUM of the MF in July 2022 rebounded strongly to reach 37.75 trillion rupees. This was on the back of a strong rebound in markets and a rally across the board. The Nifty and Sensex have rebounded over 12% from recent lows and this has generated a lot of value in equity fund AUMs. However, the overall AUM is still below the peak.

Data source: AMFI

MF’s aggregate net inflows for July 2022 amounted to Rs 23,605 crore. This was accounted for by open-end debt fund inflows of Rs 4,930 crore, open-end equity fund inflows of Rs 8,898 crore and passive fund inflows of Rs 14,271 crore. However, hybrid funds saw outflows of Rs (5,146) crore. Closed-end funds saw net inflows of Rs 599 crore in July 2022, largely on the strength of fixed-term plan NFOs. The current AUM mix is; Income funds (33.02%), equity funds (37.50%), hybrid funds (12.86%) and passive funds and solutions (15.95%). The residual of 0.67% was represented by closed funds.

It should be recalled that in March 2022, the assets under management of active equity funds had decisively exceeded that of debt funds. This lead has been maintained ever since and in July, this lead widened due to the strong market recovery. Debt funds came under pressure due to redemptions as well as the price impact of rising bond yields. Overall, MF’s assets under management increased by only 5.18% year-on-year from Rs 35.89 trillion in July 2021 to Rs 37.75 trillion in July 2022. Hybrids, solution funds and passive funds represent 28.81% of total assets under management.

Debt fund flows cautious in July 2022 amid rising yields

Over the past 5 months, debt funds have seen strong outflows in March, May and June. April was the only exception and there are now marginal net inflows into debt funds in July 2022. Outflows in the recent past could be attributed to corporate fund cash pressures and fear of a increase in yields. Debt fund inflows were fairly subdued, with most inflows going into demand funds. Overall inflows of open-ended debt funds were Rs 4,930 crore in July 2022. The sell-off was significant for short duration, long duration and even floating funds in the month of July 2022.

Here we first look at debt fund inflows in July 2022. Funds that saw substantial positive inflows include Overnight Rs19,919 crore funds, Ultra Short Duration Rs3,728 crore funds and Money Market funds Rs2,639 crore. The sharp inflows clearly betray the sentiment that bond buyers are playing it safe by staying at the short end of the yield curve to avoid price risk.

We now turn to the category of debt funds which saw exits in July 2022. Large selloffs were seen in liquid funds Rs7,693 crore, floating funds Rs4,682 crore, bank funds and PSUs Rs2,810 crore, corporate bond funds Rs2,582 crore, short term fund Rs1,872 crore and short term fund Rs646 crore. Surprisingly, even float funds are selling, despite bond yields approaching 7.4% on the benchmark 10-year.

NFOs return, but SIPs boost equity fund flows in July 2022

In the month of July 2022, the sharp rise in indices and inflows of REITs gave mutual fund investors a lot of confidence to buy equity funds. However, the big story of the month was still the persistence of SIP flows, which remained robust at Rs12,140 crore. NFOs just restarted in July 2022 and the impact should be visible this quarter. The overall equity fund inflows at Rs8,898 crore may not be exciting, but the big takeaway is that, again, not a single equity fund category saw net outflows. in July 2022.

Let’s move on to category-specific inflows. In July 2022, multi-cap funds and flexi-cap funds led the way with inflows of Rs1,906 crore. Small cap funds raised Rs 1,780 crore, Mid cap funds saw inflows of Rs 1,245 crore, Large and mid cap funds saw inflows of Rs 1,120 crore and large cap attracted flows of Rs 1,091 crore. Among others, targeted funds saw inflows of Rs773 crore, against Rs427 crore funds and Rs328 crore ELSS funds. The order of preference seems to be shifting in favor of small and mid cap funds for alpha gains.

One metric that tells you the story of the sustainability of equity fund flows is folio growth. Folios are MF investor accounts and give a good idea of ​​retail demand distribution. By the end of July 2022, stock folios hit a record high of 902.53 lakh folios out of total mutual fund folios of 1,355.74 lakhs; i.e. 66.57% share of all folios.

Same story; Hybrid funds see exits, passive funds exit assets

Hybrid funds recorded outflows of Rs 5,146 crore in July 2022. This is similar to the trend we have seen in recent months. Two factors played against hybrid funds in July 2022. First, NFOs have just started, but we have yet to see the popular BAF funds, as the current focus is on passive NFO funds. Second, hedge funds saw strong outflows of Rs 6,408 crore. Other hybrid categories like Aggressive Hybrids and BAFs saw net inflows in July 2022.

Passive funds were the big story in July 2022. These passive funds saw healthy inflows of Rs 14,271 crore as investors sought lower cost alpha. The passive push was led by equity and debt index ETFs at Rs 7,635 crore, followed by index funds at Rs 6,779 crore. Index ETFs were boosted by the NFO rush. Gold ETFs saw outflows in July, while international FOFs saw net inflows during the month. Most NFOs tend to lean towards passive funds since these funds have no product level limits. For passive funds, NFOs could be the next big story.

Mutual fund flows decoupled from market fluctuations

Overall, mutual funds recorded net inflows of Rs 23,605 crore in July 2022, largely due to strong inflows in passive funds followed by active equity funds. Despite domestic and global uncertainty, SIP flows were flat at Rs 12,140 crore in July 2022. So it would be fair to say that mutual fund flows have decoupled from market swings. A few swallows don’t make a summer; but Indian mutual funds could get there gradually.