MF equity AUM surpasses debt

A sharp rebound in the market from Covid-19 lows and sustained investor flows into equity-oriented schemes have altered the asset mix for the ~38-trillion mutual fund (MF) industry.

In March, the assets under management (AUM) for the equity segment surpassed debt for the first time ever. To be sure, the format for reporting AUM was changed in 2019. However, the current equity mix has been the healthiest it has ever been. Equity assets are even higher, if one adds hybrid MF schemes, which predominantly deploy in stocks.

In March 2022, equity AUM for the industry stood at ~13.65 trillion higher than debt AUM of ~12.98 trillion, reveals data.

In March 2020, equity AUM stood at just ~7 trillion, while debt AUM was at ~10.3 trillion. Since then, there has been a steady increase in equity AUM in the overall asset mix.

Market participants say that historically, Indian investors have always preferred investing in real estate, gold, and bank deposits, but poor relative returns for these asset classes have led to a shift in investor preference towards equities.

Jayesh Faria, associate director, business at Motilal Oswal Private Wealth, says, “Covid-19 lockdowns and a low interest-rate scenario have also encouraged retail investors to start allocating their funds to equity. This also reflects in the monthly systematic investment plan (SIPS) flows.”

Between March 2020 and October 2021, benchmark equity indices had more than doubled, enticing several investors towards stock markets.

Prateek Pant, chief business officer, Whiteoak Capital

Management, says, “The fact that domestic inflows have been steady even during such volatile environments over the past two years is a sign of investor maturity and increasing share of domestic savings into equities. We also find newer investors in millennials who have just entered employment with larger risk appetites.”

In the past two financial years, equity funds have seen net inflows of ~1.38 trillion, while SIPS have seen inflows of ~2.2 trillion.

Retail inflows into debt funds have been poor due to lukewarm returns.

In 2020 and 2021, large-cap funds gave average returns of 15.46 per cent and 24.67 per cent, respectively. While most of the shorter-end debt fund categories have given average returns of 3-5 per cent in the same time frame.