Driven by a surge in inflows into equity-oriented funds, assets under management (AUM) of mutual funds surged to a record high of Rs 37.73 lakh crore in 2021, up 22 per cent from that in the previous year, says a report by Crisil. Moreover, the net incremental inflow of Rs 6.70 lakh crore in 2021 is also a record over the previous peak of Rs 4.80 lakh crore in 2017, and Rs 4.5 lakh crore in 2020.
In percentage terms, the AUM rose as much as 22 per cent compared to 17 per cent in 2020, says the report which attributes the record numbers to the inflows into equity-oriented funds which hogged the lion’s share in the year, unlike in the previous year when it saw net outflows. According to the report, while net flows in the past two years — when the markets were on a song after the pandemic induced bloodbath in the first half 2020–were similar at around Rs 1.81 lakh crore each, the plot lines were starkly different with 2020 seeing sharp inflows into debt-oriented funds, and 2021 seeing equity-oriented funds cornering the bulk of inflows.
To be sure, net inflows into debt-oriented funds in 2020 came despite the liquidity crisis, with as much as Rs 1.94 lakh crore of outflows in March– the highest since September 2018 with an outflow of Rs 2.10 lakh crore following the IL&FS crisis. On the other hand, open-ended debt-oriented funds saw inflows of Rs 2.01 lakh crore in 2020 even as equity-oriented funds saw net inflows of just Rs 9,100 crore.
Hybrid funds also took a beating with over Rs 53,000 crore outflows. However, passive funds continued to garner money, lapping up Rs 62,000 crore, led by inflows from institutional investors like the Employees’ Provident Fund. In contrast, 2021 saw investors put a larger amount of their money in equity-oriented funds, drawn by the strong gains in the underlying equity markets.
While equity funds got net inflows of Rs 91,000 crore, passive funds saw Rs 1.14 lakh crore coming in and hybrid funds Rs 1.02 lakh crore, with the latter two boosted by a spate of new fund offers, at 41 and 8 funds, respectively. However, underperformance of actively managed funds, especially in the large-cap space whetted investor interest in the passives.
Debt funds, at the other end, saw net outflows of Rs 35,000 crore in 2021 as investors shied away amid a fall in returns or waited on the side lines expecting interest hikes by the Reserve Bank, which never happened. But the agency expects the central bank to continue to withdraw liquidity from the system in a calibrated manner when certain signs of economic recovery become visible and the first such concrete step may well begin next month with an expected 25 basis points reverse repo hike to narrow the corridor and a 25 basis points repo hike in March as demand-side pressures on inflation start to rise.
As a result, it sees the sheen of long-maturity debt funds coming down on the back of the upward movement in yields, making short-maturity debt funds like floating rate funds and roll-down strategy funds such as target maturity debt funds better bets for investors. Meanwhile, SIPs logged net inflows of Rs 1.14 lakh crore in 2021, crossing the Rs 1 lakh crore mark for the first time since Amfi started declaring this data.
December 2021 saw the most of SIP inflows at Rs 11,300 crore, and Rs 11,000-crore mark in November. The number of SIP accounts also rose to 4.91 crore, accounting for Rs 5.65 lakh crore of the industry’s assets in December. The year also saw ETFs becoming the largest MF category, while liquid funds lost sheen, benefitting from strong inflows from the EPFO and other pension trusts.
Together with new launches and individual investor interest, ETF assets overtook liquid funds as the largest MF category in 2021 closing with an AUM of Rs 3.84 lakh crore, as against Rs 3.61 lakh crore for liquid funds.