A customer holds Indian rupee banknotes (Photographer: Dhiraj Singh/Bloomberg)

Indian Mutual Funds Now Manage Record Rs 20 Lakh Crore

India’s mutual funds’ assets under management crossed a record Rs 20 lakh crore, riding on buoyant inflows as investors slowly move from physical assets like gold and real estate to financial investments.

Total assets under management grew 3 percent sequentially in August to Rs 20.6 lakh crore, according to monthly data released by the Association of Mutual Funds in India. Net inflows have crossed Rs 2.47 lakh crore so far this calendar year. That compares with Rs 2.83 crore in the whole of 2016.

India's mutual fund industry’s assets have doubled over the past three years. This is “characterised by large inflows into equity and balanced funds, with increasing participation from retail and high net worth individual investors,” according to Kaustubh Belapurkar of Morningstar Investment Adviser. The industry had crossed the Rs 10 lakh crore mark in August 2014.

Indian Mutual Funds Now Manage Record Rs 20 Lakh Crore

The “spectacular increase of flows” in mutual funds can be attributed to the Securities and Exchange Board of India’s measures for increasing mutual fund penetration in smaller cities, and partly due to demonetisation, that nudged a move towards more formal investments by Indians, Belapurkar said.

The move of money into a more formal economy post demonetisation has only further helped increase the attractiveness of mutual funds as an investment avenue.
Kaustubh Belapurkar, Director-Manager Research, Morningstar Investments Adviser India

An independent study published by the Reserve Bank of India had also noted a “distinct increase” in formal channels of savings like mutual funds and life insurance policies since Prime Minister Modi scrapped old high-value currency notes in November last year. Inflows between then and June went up to Rs 1.67 lakh crore, compared to Rs 9,160 crore in the same period a year ago.

“Mutual funds are the biggest recipient of the asset allocation rebalancing by Indian savers, which will continue,” said A Balasubramanian, chief executive officer, Aditya Birla Sun Life AMC.

Indian Mutual Funds Now Manage Record Rs 20 Lakh Crore

AUM Contribution

Income funds contributed over 42 percent of the total assets, equity funds formed around 28 percent of the assets whereas liquid funds and money market funds accounted for 17 percent of the AUM as of August 31, 2017. Balanced funds, ETFs, GILT funds and equity ELSS contributed the rest.

Domestic institutions sold more than they bought and net flows were 3 percent lower from July at Rs 61,701 crore.

“Domestic flows have acted a counterbalance to volatile foreign flows through the year,” said Belapurkar.

Indian Mutual Funds Now Manage Record Rs 20 Lakh Crore

AMFI data shows that while, at 48.1 percent in July 2017, retail investors now hold a higher share of the industry’s assets, institutions still lead with 51.9 percent.

Individual investors primarily hold equity-oriented schemes while institutions hold liquid and debt-oriented schemes - AMFI

Equity Inflows Jump

The net inflows into equity surged 60 percent to Rs 19,515 crore compared to a month ago. “That was largely the mix of balance advantage fund, balanced fund , arbitrage fund and other equity funds, the flows have come in this order,” said Balasubramanian.

Investors, however, need to moderate their return expectations, given that the valuations in the market are higher than their long-term average, said Navneet Munot, chief investment officer at SBI Funds Management. The Sensex is down 3.2 percent since it touched an all-time high of 32,686 points on August 2. The index's valuations are near multi-year highs.

Belapurkar noted the “increasing awareness and maturity level” of investors as, unlike earlier market corrections, significant inflows kept coming in the months after demonetisation.

Indian Mutual Funds Now Manage Record Rs 20 Lakh Crore

Net inflows into liquid debt and money market instruments rose to Rs 21,352 crore from the previous month’s outflow of nearly Rs 19,000 crore. “This is a reflection of ample liquidity in the system and that the money is moving to money market funds,” said Munot.

The net inflows into fixed income schemes, however, fell by nearly 86 percent to Rs 8,390 crore over the previous month.