Mutual Funds Register Sharp Drop In AUM

Having hit a purple patch post demonetisation, domestic Mutual Funds took a tumble in terms of cumulative AUM (Assets Under Management) in the month of September. Data from the AMFI (Association of Mutual Funds in India) showed that the industry’s assets dropped by over Rs. 3 Lakh Crore (3 trillion) on a month on month basis.

Before you start blaming the vagaries of the stock markets and the notoriously tempestuous nature of retail investors, note this: the lion’s share of outflows took place in the liquid fund (Rs. 211,050 crore) and income funds (Rs. 32,505 crore) categories! According to an ICRA report, the quarterly phenomenon of high redemptions related to advance tax payments, the tightness in the money markets and the continuous rise in yields were the chief contributors to the disproportionately high quantum of withdrawals from these categories last month.

There are some interesting takeaways from last month’s data: per the ICRA report, equity funds actually saw net inflows of Rs. 11,172 Crores, and balanced funds too witnessed net inflows, albeit relatively inconsequential at Rs. 731 Crores. The industry’s net SIP book actually grew by 69 Crores on a month on month basis to Rs. 7,727 Crores. In fact, the total number of folios actually grew on a month to month basis.

Prima Facie, the data would suggest that domestic retail investors have, in a sense, turned a corner. Considering that equities corrected anything between 15% to 30% in September (depending upon market capitalisation), one would have expected most investors to press the panic button and exit their equity investments. However, this wasn’t the case.

Undoubtedly, this is the result of some good work done by the industry as a whole. The cumulative efforts of the AMFI, new age distributors who have focused almost exclusively on small ticket SIP investments, and asset management companies, seem to have paid off richly – at least for now. SIP investments are expected to add nearly Rs. 1 trillion in assets over the next 12 months, and this will help stabilise the industry’s AUM amidst the volatility that lies ahead.

While its likely that a more precipitous and extended correction (if it were to materialise) will invariably bring a lot of the old behavioural tendencies to the surface, the industry can certainly take a bow in light of last month’s numbers. Today’s domestic mutual fund investor base certainly appears to be a lot more composed and well-educated compared to ten years ago!