Key mutual fund trends from 2021
NEW DELHI: In a turbulent year for the domestic mutual fund industry, assets under management (AUM) of fund companies, excluding domestic funds of funds (FoFs), surged in 2021 to close at a record high ₹37.73 trillion, according to a report by global analytics firm, Crisil Ltd.
The industry added ₹6.70 trillion, a record all-time asset gain for any calendar year on record. According to Crisil, the previous peak was ₹4.80 trillion in 2017, followed by ₹4.5 trillion in 2020. As a percentage, the industry gained 22% in 2021 from 17% in 2020.
Additionally, in a pause from 2020, equity-focused funds captured the lion’s share.
Crisil listed the top trends from the record year for the mutual fund industry.
2020 and 2021 asset flows see diverging plots
According to Crisil, net flows in 2020 and 2021 were similar to around ₹1.81 trillion, but the storylines were radically different. While 2020 had seen strong inflows into debt-focused mutual funds, 2021 saw equity-focused mutual funds hog the bulk.
“Granted, the net inflows into debt-focused funds in 2020 had come despite the liquidity crunch, with as much as ₹1.94 trillion releases in March – the most since September 2018, which had seen ₹2.10 trillion cash outflows as a result of the IL&FS credit crunch – as the pandemic and subsequent economic lockdown left investors wary,” he wrote in a report.
By contrast, in 2021, investors have put more of their money into equity-focused mutual funds, attracted by strong gains in the underlying stock market. Equity UCITS recorded net inflows of ₹91,000 crore, while passive funds got ₹1.14 trillion and hybrid funds ₹1.02 trillion. Passive funds and hybrid funds benefited from a wave of new fund offerings, at 41 and 8 funds respectively.
ETFs become the largest category of mutual funds
Benefiting from strong inflows from EPFO and other pension funds, as well as new launches and interest from individual investors, assets in exchange-traded funds (ETFs) surged to overtake liquid funds as largest MF category in 2021. The category closed 2021 with assets of ₹3.84 trillion compared to ₹3.61 trillion for cash.
“Liquid funds have lost their luster as their yields have fallen in line with low interest rates, making other classes of money market money funds more attractive to investors with higher risk appetites. Class assets are also now treated on equal terms with those of other MF debt classes as mark-to-market valuation, rather than the amortization rule it previously enjoyed,” Crisil said.
SIP entries set record for calendar year 2021
The industry recorded net inflows of ₹1,140 billion in 2021 through Systematic Investment Plans (SIPs), crossing ₹$1 trillion for the first time in a calendar year since AMFI began reporting this data.
The last month of 2021 also saw SIP flows hit their monthly record of ₹11,300 crore, after crossing the ₹11,000 crores for the first time in November 2021.
In addition, the number of SIP accounts has increased to 4.91 crores, representing ₹5.65 trillion in industry assets in December.
Floating rate, target maturity and ESG funds are gaining ground
2021 has seen categories such as floating rate debt funds and passively managed debt funds in the form of target maturity funds gain traction within the industry. While floating rate debt funds have benefited from their ability to hold on to the movement of interest rates, investors’ focus on credit quality amid rising interest rates has spurred target maturity debt funds.
“On the equity front, we’ve also seen growing traction in the environmental, social and governance (ESG) space, as the theme of ‘conscious investing’ has become popular among investors,” Crisil said. .
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