This is what happened to your money? Nomura special report on Mutual Fund flows

Mutual fund investors must be looking forward to hearing some news about what happened to their money in the month of November. Nomura has presented a special mutual fund report that shows how your money moved. Mutual Fund AUM drags have reduced considerably, with a sharp run-up in equity markets, and non-equity AUM have also witnessed strong traction, aiding overall AUM growth of 11% yoy, despite weak equity flows. Consequently, we find risk-reward turning favourable for AMCs at the margin, driven by buoyant capital markets. Pressure on equity flows and a moderating SIP book remain key monitorables in the near term.

Equity MF flows (including ELSS) remained weak for the sixth straight month, recording net outflows of Rs 136 bn, the highest net outflow since June-19. While gross inflows moderated to Rs 150 bn (v/s Rs 195 bn monthly run-rate in FY20), net outflows were driven by large redemptions of Rs 288 bn (highest monthly redemptions since Mar18), with the market reaching new highs. While equity flows remained weak, strong market performance has aided 12% yoy growth in equity AUMs (10% mom).

Gross equity inflows declined mom to Rs 152 bn (v/s Rs 195 bn FY20 average monthly run-rate), while SIP flows were down sharply to Rs 73 bn (Rs 78 bn in Oct-20, down 6.5% mom), on account of less working days in November (festive season) likely impacting flows. Normalisation of SIP flows remains a key monitorable. Lump-sum flows remained quite weak at INR209bn for the sixth straight month (Rs 123 bn average monthly outflow run-rate).

Balanced funds have registered persistent outflows for two years now, with the trend showing no signs of reversal, Rs 45 bn of net outflows in November 2020. Arbitrage funds witnessed a net outflow of Rs 3 bn.
Debt flows had yet another month of strong inflows of Rs 657 bn (similar to Oct-20 and are currently at their highest run-rate in the past five years). Debt flows have now been positive for the seventh straight month with negative news flow clearly behind the industry now and also aided by higher liquidity. Liquid net flows were slightly on the weaker side, Rs 210 bn in net outflows. Cumulatively in the past six months, non-equity net inflows are at Rs 1.8 trn.

Equity flows: High redemptions hurt flows:

Equity flows continued to remain under pressure, registering Rs 136 bn in net outflows (highest outflows since June-19), driven by higher redemptions of Rs 288 bn. Gross inflows also moderated to Rs 152 bn from Rs 180-190 bn in Sep/ Oct-20, but were probably also hit by fewer working days in the festive month. That said, redemptions were elevated at Rs 288 bn (significantly higher v/s Jul-Oct run-rate at Rs 200 bn) because of the rebound in markets, the highest monthly redemptions since March 2018. That said, equity AUM remained robust up 10% mom and 12% yoy, driven by a strong rally in equity markets (broader indices up 11- 12% mom) despite weaker flows.

The decline in SIP flows by customers comes as a negative surprise, declining 6.5% mom to Rs 73 bn v/s Rs 78 bn in Oct-20. Nomura thinks part of the decline could be attributed to fewer working days in the festive season. From a peak of Rs 84 bn in Mar-20, the SIP book is now down 15% and hence remains a key monitorable. Net new SIP account additions remained steady at 1% m0m in October (similar to July-Sep). Lump sum outflows (including balanced and arbitrage) remained high at Rs 209 bn in November, for the sixth straight month. Cumulatively, lump sum outflow has been Rs 700-800 bn in the previous six months.