Active Funds Dominate as Mutual Fund Market Surges to Rs.67 Lakh Crore
India’s mutual fund industry has grown multifold with assets under management (AUM) having more than six-folded in the last decade. As of December 2024, AUM has reached Rs.66.93 lakh crore. According to a recent study Where the Money Flows, conducted by Motilal Oswal Asset Management Company (MOAMC), Active Funds continue to lead the market despite rising interest in Passive Funds.
Active Funds, where the fund managers actively make choices to outperform benchmark indices, accounted for a whopping Rs.56.08 lakh crore in AUM, or 84% of the whole market. Passive Funds, on the other hand, track market indices at minimal management costs, holding Rs.10.85 lakh crore, which is 16% of the industry’s total AUM.
Equity funds emerged as the preferred choice for investors, making up 60.19% of the total AUM. Debt funds followed with a 26.77% share, while hybrid funds and other categories held 8.58% and 4.45%, respectively.
Surging Equity Fund Inflows
The study revealed that equity funds attracted Rs.199,000 crore in net inflows during the last quarter. Active Equity Funds led the increase with Rs.105,000 crore in net inflows, followed by Rs.29,000 crore in Passive Equity Funds. Equities-elsewhere in the balance sheet Broad-based funds comprised 69% of all equity inflows. Of interest, market share gained by Active Broad-based Funds from 57% quarter-on-quarter to 70%, but Passive Broad-based Funds dropped from a high of 90% to 66%. Flexi Cap and Mid Cap funds were the standouts in the Broad-Based category, where each received Rs.15,000 crore in net inflows. While large-cap segments begin to witness an increase in passive investments, investment money kept streaming toward Mid-Cap and Small-Cap segments.
Thematic Funds Exhibit Mixed Trends
This type of thematic fund saw an inflation of Rs.17,000 crore fall down to Rs.14,000 crore during the quarter. Even in the subcategory, however, Consumption and Infrastructure funds seemed to draw an interest amount of Rs.4,500 crores. Besides, there’s been some development in passive thematic funds with most interest pouring in for new, emerging sectors that include capital markets, electric vehicles, and tourism.
Debt funds continued to be an important part of the mutual fund scenario. Constant Maturity Funds accounted for the largest net inflow at Rs.37,000 crore, while Corporate Bond Funds and Gilt Funds attracted Rs.6,000 crore and Rs.4,000 crore, respectively. However, Target Maturity Funds saw net outflows of Rs.8,000 crore.
Liquid funds remained the first choice for short-term investments and accounted for 41% of the total net inflows. These funds were allotted Rs.15,000 crore, followed by Low Duration and Ultra Short Duration Funds that received Rs.7,500 crore and Rs.7,000 crore, respectively. Owing to the nature of liquid funds, these witnessed high cash flow volatility.
Hybrid and Multi-Asset Funds Witness a Surge in Interest
Hybrid funds saw healthy inflows mainly in the Multi-Asset category, which constituted 48% of the net hybrid fund inflows. At 25%, Balanced Advantage Funds followed; Equity Savings Funds fell to 15% from 26%. Aggressive Hybrid Funds rose steadily, having risen from 4% to 12% quarter on quarter.
International Funds Remain Subdued
Internationals saw an inflow at a very slow pace, but this was once again due to the Reserve Bank of India constraining new inflows into all such schemes. Both Active as well as passive broad-based International funds saw negative growth, where passively managed thematic international funds saw net redemptions amounting to Rs.300 cr.
Key Take-aways from this Report
- Mutual fund AUM has grown over six times in the last decade, touching Rs.66.93 lakh crore in December 2024, from Rs.10.51 lakh crore in December 2014.
- Active Funds are still at a majority, with Rs.56.08 lakh crore (84% of total AUM), while Passive Funds account for Rs.10.85 lakh crore (16%).
- Equity funds leading the market, equity funds constitute 60.19% of AUM, as net inflows stood at Rs.199,000 crore for the last quarter.
- Debt funds make up for 26.77% of AUM, with Active Debt Funds seeing the inflow of Rs.47,000 crore, and Passive Debt Funds witnessing net outflows of Rs.9,000 crore.
- Broad-Based Funds continue to attract the highest equity inflows at 69% market share. Active Broad-Based Funds increased from 57% to 70% QoQ.
- Flexi Cap and Mid Cap funds each received Rs.15,000 crore in net inflows.
- Themes witnessed a negative inflow of funds. This comes from Rs.17,000 crore to Rs.14,000 crores and consumption infrastructure funds has seen the maximum inflow at Rs.4,500 crores.
- Debt and liquid funds have seen no major fall; it remained the same. Constant maturity funds saw the most inflow at Rs.37,000 crores. The amount of liquid funds has touched Rs.15,000 crores.
- Hybrid Funds saw growing popularity, with Multi-Asset Funds accounting for 48% of net inflows in this segment.
- International Funds reported inactivity, with marginal inflows, largely due to RBI imposed curbs.
The Indian mutual fund industry has grown exponentially, fueled by the country’s economic growth and financial literacy initiatives.
The rising AUM indicates that the sector can better respond to all categories of investors’ requirements and effectively build the financial system. While Passive Funds are gaining attention, Active Funds remain the favourites of investors more so in equities and debts. With mid-cap and small-cap funds growing in allocation the market dynamics, indicate a paradigm shift in investment behavior, creating the future trends of mutual funds in India.
