The Indian mutual fund (MF) industry’s assets under management (AUM) advanced on-month ~5% in October to mark a fresh record high, on the back of significant inflows in the open-ended debt category and mark-to-market (MTM) gains in the domestic equity market. As a result, the industry’s month-end AUM rose ~Rs 1.37 lakh crore on-month, breaching the Rs 28 lakh crore mark for the first time ever, to settle at Rs 28.23 lakh crore. January 2020 had seen the previous record high of Rs 27.86 lakh crore.

Equity funds sell-off continue for fourth month, but MTM gains propel assets

Sell-off in open-ended equity schemes continued in October, with the category recording net outflow of Rs 2,725 crore, higher than the previous month’s outflow of ~Rs 734 crore.

Multi-cap funds bled the most, impacted by the market capitalisation norms announced by the Securities and Exchange Board of India (SEBI) for the category in September 2020. Net outflow in multi-cap funds were at ~Rs 1,903 crore, marking the highest monthly outflow figure recorded for the category since the Association of Mutual Funds in India (AMFI) changed its format of dissemination in April 2019. Value / contra funds also saw the highest monthly outflow on record since April 2019, at ~Rs 1,201 crore. Sentiment remained weak for mid- and large-cap funds as well – cumulative net outflows for both categories in October stood at ~Rs 1,106 crore.

Sectoral / thematic schemes were the only open – ended equity category to record net inflow in October, of ~Rs 2,215 crore (highest monthly net inflow recorded since April 2019), as investors evinced interest in new fund offers launched by asset management companies.

Despite the broad net outflows, MTM gains in the domestic equity market in October resulted in the overall asset base rising 1.7% on month to Rs 7.77 lakh crore, which is the highest since January 2020’s figure of Rs 7.90 lakh crore. The benchmark equity indices, represented by the S&P BSE Sensex and Nifty 50, rose 4.1% and 3.5%, respectively, on-month.

Equity ETFs see net outflows on the back of sale of investments by EPFO

Equity exchange traded funds (ETFs), recorded net outflow of ~Rs 2,661 crore in October as the Employees’ Provident Fund Organisation resorted to sell, to bridge its shortfall in order to pay the half-yearly instalment of interest rate as well as generate income as per news reports. On the other hand, interest in gold ETFs, which track the price of the yellow metal, remained firm, with the category recording its seventh straight month of inflow at ~Rs 384 crore, despite gold prices as represented by the Crisil gold index declining 0.14% on-month.

Open-ended debt funds record highest net inflows since October 2019

On the other hand, cumulative net inflows in open-ended debt funds stood at ~ Rs 1.10 lakh crore in October 2020, the highest figure recorded since Rs 1.21 lakh crore in October 2019. Almost all categories recorded inflows, with liquid funds leading the way: they witnessed net inflow of Rs 19,583 crore in October, versus net outflows of Rs 65,952 crore the previous month. The other prominent drivers of inflows were money market, short duration, corporate bond, and ultra-short duration schemes, which saw a strong surge in investor interest. Each of these categories recorded their highest monthly net inflow figures since April 2019, ranging from Rs 13,654 crore to Rs 15,445 crore.

Long duration and credit risk were the only categories to record net outflows, of Rs 213 crore and Rs 415 crore, respectively.

Aided by the inflows, the AUM of open-ended debt funds grew ~Rs 1.21 lakh crore, or 9.93% on-month at the aggregate level, to a record high of Rs 13.34 lakh crore.

Nearly all hybrid categories recorded net outflows

Barring arbitrage funds, which recorded net inflows of Rs 1,739 crore in October, all other categories recorded net outflows, with aggressive hybrid and dynamic asset allocation funds bearing the brunt at a cumulative outflow of ~Rs 2,881 crore. MTM gains in the underlying equity asset class contributed to a rise in the AUM of the hybrid category by 0.4% to Rs 2.95 lakh crore at the end of October.