Mutual fund folio growth: How the April 2024 story panned out

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WHY FOCUS ON FOLIO GROWTH?

Folios or unique mutual fund investor accounts have a unique place in the analysis of mutual fund traction. Unlike the much touted AUM, the folio numbers do not get the media attention. Overall, AUM has 3 major shortcomings. Firstly, the overall AUM could be influenced by cyclical debt market and treasury flows, which do not result in commensurate growth in investor interest. Secondly, even within equity funds, the AUM can be dominated by a few handful of HNI investors. This can give a smug feeling of mutual fund growth, whereas the retail investors may hardly be participating. Thirdly, the AUM growth is also vulnerable to the market indices. In the last one year, much of the AUM growth has come from the rise in the Nifty and the Sensex. Looking at the folio numbers, instead of the AUM overcomes this market impact bias. That is why, folio growth offers a much better barometer of retail participation in mutual funds in India.

FOLIOS CAPTURE OPPORTUNITY MATRIX MORE ELOQUENTLY

At the outset, the mutual fund folios themselves, are not a perfect measure of retail participation. For instance, today there are 18.15 crore mutual fund investor folios. However, these are just unique accounts and a person having mutual fund investments in 10 AMCs would have 10 folio numbers. It is the same person being counted 10 times. One way to overcome this challenge is to look at unique investors as identified by PAN number. For example, 18.15 Crore folios in India as of April 2024, only about 4.30 Crore investors are unique. However, the PAN data is hard to come by and hence mutual fund folios are the best approximation of retail intensity that we have. We now turn to how folios have grown over the last one year (March 2024 to April 2024) across categories and sub-categories.

MF FOLIOS: MACRO PICTURE FOR APRIL 2024

How does the macro picture for April 2024 of mutual fund folios look like across open-ended and close-ended funds?

Macro picture Total Folios Apr-24 Total Folios Apr-23 Folio Growth
Open ended Funds 18,09,08,486 14,59,25,989 23.97%
Closed Ended and Interval Funds 5,59,800 4,90,068 14.23%
Grand Total 18,14,68,286 14,64,16,057 23.94%

Data Source: AMFI

At a macro level, the total number of mutual fund folios as of April 2024 stood at 18.15 crore; compared to 17.79 Crore folios  in March 2024, 17.42 Crore folios in February 2024, and 16.96 Crore in January 2024. On a yoy basis, over April 2023, total folios are up at a robust 23.94%, which is progressively better than 22.04% in March 2024, 20.76% in February, and 18.70% in January 2024. The improvement is consistent and progressive.

In short, the ratio of yoy folio accretion has been consistently improving over last 4 months. In the last few months, even the closed ended folios have shown growth on a yoy basis to the tune of 14.23% and that is due to surge in demand for fixed term plans (FTP), or FMPs as they are called. However, at a macro level, the close-ended folios are less than 0.31% of total mutual fund folios.

DEBT FUND FOLIOS CONTRACT MARGINALLY IN APRIL 2024

Debt fund folios had been under pressure in recent months. While the yoy folio growth of debt funds has been oscillated, it had growth in March 2024 by a marginal 0.07%. However, the massive sell-off in debt funds in March 2024 ensured that the debt fund folios again showed signs of contracting by -0.83% in the month of April 2024.

Active Debt Funds Total Folios Apr-24 Total Folios Apr-23 Folio Growth
Long Duration Fund 66,056 46,138 43.17%
Overnight Fund 8,62,266 6,59,479 30.75%
Gilt Fund 1,88,788 1,77,311 6.47%
Money Market Fund 4,32,420 4,22,740 2.29%
Liquid Fund 17,95,314 17,75,399 1.12%
Ultra Short Duration Fund 6,37,892 6,32,337 0.88%
Dynamic Bond Fund 2,19,635 2,30,966 -4.91%
Medium to Long Duration Fund 1,00,474 1,06,795 -5.92%
Low Duration Fund 8,77,232 9,35,894 -6.27%
Floater Fund 2,14,429 2,34,702 -8.64%
Corporate Bond Fund 5,50,184 6,13,934 -10.38%
Gilt Fund with 10 year constant duration 37,674 42,343 -11.03%
Short Duration Fund 4,48,556 5,04,524 -11.09%
Medium Duration Fund 2,26,970 2,55,984 -11.33%
Banking and PSU Fund 2,54,666 2,95,048 -13.69%
Credit Risk Fund 2,05,509 2,43,984 -15.77%
Sub Total – Active Debt Funds 71,18,065 71,77,578 -0.83%

Data Source: AMFI

What are the key takeaways from a yoy comparison of debt fund folios as of April 2024. Out of the 16 categories of debt funds available in India as per AMFI classification, 6 categories showed positive growth in folios, while the remaining 10 debt fund categories saw contraction in folios. The ratio of contracting folios to expanding folios stands at 10:6. This is at par with the month of February, but much better than the ratio of 12:4 in favour of the contractions in March 2024. In April, the ration of positive to negative debt fund folios growth is back to 10:6. The leader of the pack in terms of folio growth was Long Duration Funds, which grew 43.17% yoy, on a relatively smaller base. Long Duration Funds grew folios at 30.75%, albeit on a much higher base. Gilt funds, money market funds, liquid fund, and ultra short duration funds also saw positive folio growth traction in the month; although they all saw growth only in single digits.

In terms of folio contraction, it was the same list of standard suspects putting pressure on folio growth? Contraction in folios was pronounced across credit risk funds, banking & PSU funds, short duration funds, medium duration funds, and gilt funds with 10-year duration. The folios story shows a general aversion for longer duration bond funds and also for any sort of allocation discretion; which has not worked well in the past. Liquidity tightness caused short term yields to stay high; giving a natural edge to shorter yield end funds.

ACTIVE EQUITY FUNDS ADDED 2.68 CRORE FOLIOS YOY

In contrast to debt funds, there was little ambivalence in the growth of equity fund folios in April 2024 as they added 2.68 Crore folios in the year, across categories. For equity funds, macro level folio expansion improved further to 27.13% in April 2024; compared to 24.96% in March 2024, 23.50% in February 2024; and 21.06% in January 2024. Equity fund folios accretion was the big story in April 2024, despite tapering net inflows into equity funds.

Active Equity Funds Total Folios Apr-24 Total Folios Apr-23 Folio Growth
Small Cap Fund 1,94,02,862 1,11,25,117 74.41%
Multi Cap Fund 62,83,413 41,74,058 50.53%
Sectoral/Thematic Funds 1,90,67,350 1,32,28,388 44.14%
Value Fund/Contra Fund 63,48,393 47,14,942 34.64%
Mid Cap Fund 1,43,80,224 1,06,95,532 34.45%
Dividend Yield Fund 9,01,907 7,30,675 23.43%
Large & Mid Cap Fund 94,58,793 78,44,968 20.57%
Flexi Cap Fund 1,45,35,204 1,27,15,541 14.31%
Large Cap Fund 1,38,58,639 1,29,55,752 6.97%
ELSS 1,62,28,330 1,52,79,990 6.21%
Focused Fund 50,87,570 52,96,509 -3.94%
Sub Total – Active Equity Funds 12,55,52,685 9,87,61,472 27.13%

Data Source: AMFI

In April 2024, a total of 10 out of the 11 categories of equity funds as per AMFI classification saw accretion in folios. That is a strike rate of 91%; the same as last 4 months. The only equity fund category to see contraction in folios in April 2024 was focused funds, with folios shrinking by -3.94%. As usual, small cap funds and multi-cap funds topped the folio growth story. The return of small caps is good news as it shows that genuine retail interest is back in the markets, irrespective of relative valuations and overpricing concerns amidst rising VIX.

The big growth stories in terms of equity fund folios were small cap funds at 74.41%, Multi-Cap funds at 50.53%, sectoral / thematic funds at 44.14%, value / contra funds at 34.64%, mid-cap funds at 34.5%, and dividend yield funds at 23.43%. Retail investors are back to picking alpha champions from segments like small cap funds, mid-cap funds, sectoral and thematic funds etc. The shift from flexi cap funds to multi-cap funds is a clear indication that investors are starting to value allocation and process over visible outcomes. Equity fund folios growth at 27.13% in April 2024; indicating that happy days are back again.

ALL HYBRID FUNDS SEE POSITIVE FOLIO GROWTH YOY

We have combined hybrid funds and solution-based funds to offer a more realistic picture of hybrids. After all, solutions funds are hybrids too. Folios have grown across categories with 100% strike rate of positive folio growth. Apart from multi-asset allocation funds, equity savings funds and arbitrage funds also saw sharp growth in folios on YOY basis.

Hybrid / Solution Funds Total Folios Apr-24 Total Folios Apr-23 Folio Growth
Multi Asset Allocation Fund 21,01,004 10,67,029 96.90%
Equity Savings Fund 4,15,199 3,59,867 15.38%
Arbitrage Fund 5,04,940 4,44,440 13.61%
Dynamic Asset Allocation/BAF 46,55,854 44,43,726 4.77%
Retirement Fund 28,81,792 27,62,964 4.30%
Conservative Hybrid Fund 5,38,841 5,16,833 4.26%
Aggressive Hybrid Fund 54,42,365 53,04,415 2.60%
Childrens Fund 29,88,784 29,28,945 2.04%
Sub Total – Hybrid Funds 1,95,28,779 1,78,28,219 9.54%

Data Source: AMFI

All the 8 categories of hybrid funds saw folio expansion in April 2024; with 5 out of these 8 reporting single-digit growth in folios and 3 categories evincing double digit growth in April 2024. The best folio growth was seen, once again, in multi asset allocation funds at 96.90% and this comes on an expanded base. The other segment of equity savings funds also saw investor folios growing by 15.38% yoy. Investors are now looking at select hybrids with multiple asset combinations as engines of asset allocation. After all, it is asset allocation that is the answer to 90% of portfolio swings. If you look at the two categories of funds with the best folio growth in April 2024; multi-asset allocation funds and equity savings funds are asset allocation funds. Today, investors in hybrid funds are looking for a combination of asset mixing, asset allocation, and a rule based approach. The rise of retirement fund NFOs, has pushed these retirement funds much higher in terms of folio growth.

Other than the multi asset allocation funds, equity savings funds and arbitrage funds; all the other categories of hybrids only showed single digit growth. Balanced Advantage Funds (BAFs), which enjoys the highest AUM among hybrid funds, faltered in folio growth, in the absence of NFOs. For hybrid category of funds, number of folios grew 9.54% in April 2024, 8.47% in March 2024, 7.43% in February 2024, and 6.61% in January 2024.

PASSIVE FUNDS SUSTAIN 100% STRIKE RATE

Passive funds may not have set the markets on fire in terms of AUM growth like in the case of active funds, but they have still added 65.50 Lakh folios YOY. India. Passive category includes equity and debt related index products, apart from gold funds and Fund of Funds (FOF). These are passive products; are either benchmarked to an underlying index or a commodity asset class. Here is how the folios of passive funds grew YOY in April 2024.

Passive Funds Total Folios Apr-24 Total Folios Apr-23 Folio Growth
Index Funds 79,83,396 40,20,423 98.57%
Other ETFs 1,40,29,727 1,21,10,751 15.85%
Fund of funds investing overseas 15,12,123 13,15,347 14.96%
GOLD ETF 51,83,711 47,12,199 10.01%
Sub Total – Passive Funds 2,87,08,957 2,21,58,720 29.56%

Data Source: AMFI

Other than hybrid funds, even passive funds saw expansion in number of folios across all the categories. In fact, the growth in YOY folios of passive funds is the highest among all categories; higher even than active funds. This is a reminder to all the Cassandras who believe that passive funds have fallen off the radar. Passive fund folios gained in April 2024 (on a yoy basis) on the back of fresh retail interest in debt as well as some selective NFOs in the period. The Index funds dominated folio growth at 98.57%, followed by Index ETFs at 15.85%, and international FOFs at 14.96%. Even gold ETF folios grew by 10.01% yoy.

Passive fund folio growth, on yoy basis, improved to 29.56% in April 2024; compared to 27.57% in March 2024, 26.68% in February 2024, and 24.73% in January 2024. To cut a long story short, folio growth continues to remind us that Indian equity markets are becoming inclusive; not on in terms of active equity fund penetration but also of passive equity fund penetration. Folio growth may not be precise or complete. However, folios growth is the best approximation of retail participation and intensity in mutual funds.