WHY FOLIO GROWTH IS OUR PREFERRED BAROMETER?
Folios or unique mutual fund investor accounts have a special importance when it comes to understanding mutual fund flow traction. We normally get to hear grand statements in the media like the mutual fund AUM crossed ₹50 Trillion or ₹60 Trillion, as it has done in the month of June 2024. However, if you focus purely on AUM growth, there are some critical aspects you would miss out. First and foremost, the overall AUM could be influenced by cyclical debt market and treasury flows, which do not reflect commensurate growth in retail investor interest. Especially, debt funds at the short of the yield curve are focused on treasury flows since corporates park these funds in liquid and money market funds ahead of payment of advance taxes or monthly GST. Secondly, If you purely look at equity fund AUM, then a handful of powerful and wealthy families in India can be moving billions of dollars via mutual funds, but that hardly says anything about retail intensity.
Thirdly, the biggest shortcoming in AUM is that it is too index reliant. In the last one year, the AUM of equity funds and select equity-oriented passive funds have gone up sharply purely on market index accretion, even when the flows have been relatively tepid. When the Nifty is above 24,000 and the Sensex is above 80,000, then the value appreciation itself offers a big boost to the AUM of mutual funds overall. It is to fill this gap that folio growth comes into play; offering a superior barometer of retail participation in mutual funds in India. To understand the role of folios, we shall look at how folios have grown in absolute numbers on a yoy basis. Later, we shall also look at folio growth on a more granular basis across specific category of mutual funds. A small caveat here. The folios are unique accounts, but not unique investors. That is only captured by unique PAN. For now, we compare folios for the last one year (June 2024 over June 2023) for a good proximation.
MF FOLIOS: BIG PICTURE FOR JUNE 2024
How does the big picture of mutual fund folios look like in June 2024; across open-ended and close-ended funds?
| Macro picture | Total Folios Jun-24 | Total Folios Jun-23 | Folio Growth |
| Open ended Funds | 19,04,97,503 | 14,86,89,499 | 28.12% |
| Closed Ended and Interval Funds | 5,49,615 | 4,42,209 | 24.29% |
| Grand Total | 19,10,47,118 | 14,91,31,708 | 28.11% |
Data Source: AMFI
At a macro level, the total number of mutual fund folios as of June 2024 stood at 19.10 Crore folios; compared to 18.60 Crore in May 2024, 18.15 Crore in April, 17.79 Crore folios in March 2024, and 17.42 Crore folios in February 2024. Each month, the folios have steadily built steam. On a yoy basis, compared to June 2023, total folios are up at a robust 28.11% in June 2024; compared to 26.19% in May 2024, 23.94% in April, 22.04% in March, and 20.76% in February. The traction on folios is progressively higher as is the yoy growth in folios.
On yoy basis, it is not just the open ended folios, but even the closed ended folios have grown, and that could be attributed to the FTP (fixed term plans), the only closed ended product that continues to attract interest among Indian investors. However, at a macro level, the close-ended folios are less than 0.29% of total mutual fund folios.
ACTIVE DEBT FUND FOLIOS CONTRACT IN JUNE 2024
Debt fund folios had been under pressure for the last few years due to a combination of quarterly treasury pressures, rising rates, lack of clarity on rate trajectory, and liquidity issues. By default, the debt fund folios are corporate and hence, cyclical, in nature. Also, the uncertain interest rate environment has forced investors to gravitate towards the shorter end of the yield curve, while avoiding the longer end. For June 2024, active debt fund folios contracted by -2.69%; compared to -1.40% in May 2024 and -0.83% in April 2024.
| Active Debt Funds | Total Folios Jun-24 | Total Folios Jun-23 | Folio Growth |
| Long Duration Fund | 66,641 | 47,668 | 39.80% |
| Overnight Fund | 8,63,087 | 6,94,136 | 24.34% |
| Gilt Fund | 1,89,771 | 1,80,688 | 5.03% |
| Money Market Fund | 4,30,454 | 4,28,088 | 0.55% |
| Liquid Fund | 17,78,436 | 17,78,066 | 0.02% |
| Ultra Short Duration Fund | 6,31,122 | 6,37,819 | -1.05% |
| Medium to Long Duration Fund | 99,224 | 1,06,555 | -6.88% |
| Dynamic Bond Fund | 2,16,403 | 2,32,991 | -7.12% |
| Low Duration Fund | 8,47,689 | 9,30,843 | -8.93% |
| Floater Fund | 2,10,277 | 2,32,214 | -9.45% |
| Corporate Bond Fund | 5,41,562 | 6,10,771 | -11.33% |
| Short Duration Fund | 4,38,621 | 5,02,719 | -12.75% |
| Gilt Fund (10-Year duration) | 36,681 | 42,164 | -13.00% |
| Medium Duration Fund | 2,19,933 | 2,54,975 | -13.74% |
| Banking and PSU Fund | 2,45,334 | 2,89,473 | -15.25% |
| Credit Risk Fund | 1,97,979 | 2,38,230 | -16.90% |
| Sub Total – Active Debt Funds | 70,13,214 | 72,07,400 | -2.69% |
Data Source: AMFI
What are the key takeaways from a yoy comparison of debt fund folios as of June 2024? Out of the 16 categories of debt funds as per AMFI classification, only 5 categories showed positive growth in folios. Even out of these 5 categories, only 3 categories had decisive growth in folios, while for the other 2 it was less than 1%. The ratio of contracting folios to expanding folios stands at 11:5. In fact, the ratio has worsened in June compared to 10:6 in May 2024. The last time the ratio was more unfavourable was in March 2024 when the ratio of contraction to expanding folios stood at 12:4. The leader in terms of folio growth was Long Duration Funds, which grew 39.80% yoy, on a relatively smaller base. Overnight funds also grew folios at 24.34%, on a much larger base. Gilt funds, money market funds, and liquid funds showed positive folio growth with the others showing negative growth in folios.
In terms of folio contraction, it was the same list of standard suspects putting pressure on folio growth? Contraction in folios was pronounced across credit risk funds at -16.9%, banking & PSU funds -15.25%, medium duration funds at -13.74%, and gilt funds with 10-year constant duration also contracting folios by -13.00%. Investors have shown an aversion for bonds where there is an element of discretion to the fund manager; and it could be an outcome of the Templeton MF fiasco of 2020. For now, the big story is whether the RBI will cut rates this year and whether it will take the repo rates back to the pre-COVID levels?
ACTIVE EQUITY FUNDS ADD 3.22 CRORE FOLIOS IN 1 YEAR
While debt fund folio contraction showed a lot of ambivalence among investors, there was no such ambivalence on equity funds. In June 2024, active equity funds added 3.22 Crore folios compared to June 2023. For active equity funds, the yoy folio expansion improved further to 31.88% in June 2024; compared to 29.63% in May 2024, 27.13% in April, 24.96% in March, and 23.50% in February 2024. These folio additions have come about due to a combination of record SIP flows and robust NFOs in the last one year.
| Active Equity Funds | Total Folios Jun-24 | Total Folios Jun-23 | Folio Growth |
| Sectoral/Thematic Funds | 2,24,97,544 | 1,33,44,178 | 68.59% |
| Small Cap Fund | 2,02,96,496 | 1,22,67,299 | 65.45% |
| Multi Cap Fund | 68,57,791 | 42,81,290 | 60.18% |
| Mid Cap Fund | 1,52,74,241 | 1,10,49,628 | 38.23% |
| Value Fund/Contra Fund | 67,21,735 | 49,36,198 | 36.17% |
| Dividend Yield Fund | 9,52,532 | 7,52,821 | 26.53% |
| Large & Mid Cap Fund | 98,34,494 | 79,86,403 | 23.14% |
| Flexi Cap Fund | 1,50,26,296 | 1,27,84,279 | 17.54% |
| Large Cap Fund | 1,41,29,880 | 1,29,37,115 | 9.22% |
| ELSS | 1,63,71,644 | 1,53,01,801 | 6.99% |
| Focused Fund | 50,69,662 | 52,32,806 | -3.12% |
| Sub Total – Active Equity Funds | 13,30,32,315 | 10,08,73,818 | 31.88% |
Data Source: AMFI
In June 2024, a total of 10 out of the 11 categories of equity funds as per AMFI classification saw accretion in folios. That is a strike rate of 91%; a figure that has been constant for the last 5 months. The only equity fund category to see contraction in folios in June 2024 was focused funds, with folios shrinking by -3.12%. Thanks to the slew of NFOs, it was the sectoral / thematic funds which led the folio growth in June followed by the small-cap, multi-cap, and mid-cap funds. The revival in small caps shows genuine retail interest. Valuations may be a concern, but the basic rule for traders is “Bhaav Bhagwaan Chhe”
The big growth stories in terms of equity fund folios were sectoral / thematic funds at 68.59%, small cap funds at 65.45%, multi-Cap funds at 60.18%, mid-cap funds at 38.23%, and value / contra funds at 36.17%. The improved ranking of thematic funds started in May with the NFO of HDFC Manufacturing Fund, that raised ₹9,563 Crore. That trend of sectoral and thematic NFOs have continued in June also. One interesting shift is from flexi cap funds to multi-cap funds; as evident in folio growth. It looks investors prefer a more rule-based approach to combined investing; rather than giving 100% discretion to the fund manager. Overall, equity fund folios grew by 31.88% in June 2024; thanks to the NFOs and SIPs taking off in a big way in the month.
HYBRID FUNDS SHOW 100% STRIKE RATE IN FOLIO GROWTH
We have combined hybrid funds and solution-based funds due to their similar profile. Folios have grown across hybrid categories with 100% strike rate of positive folio growth. While multi-asset allocation funds lead the show, other allocation funds are also seeing traction.
| Hybrid / Solution Funds | Total Folios Jun-24 | Total Folios Jun-23 | Folio Growth |
| Multi Asset Allocation Fund | 23,40,890 | 11,39,849 | 105.37% |
| Arbitrage Fund | 5,19,317 | 4,35,281 | 19.31% |
| Equity Savings Fund | 4,24,433 | 3,62,326 | 17.14% |
| Dynamic Asset Allocation/BAF | 47,22,817 | 44,30,919 | 6.59% |
| Retirement Fund | 29,23,859 | 27,74,489 | 5.38% |
| Conservative Hybrid Fund | 5,42,400 | 5,19,553 | 4.40% |
| Aggressive Hybrid Fund | 54,80,053 | 52,91,966 | 3.55% |
| Children Fund | 29,96,772 | 29,33,164 | 2.17% |
| Sub Total – Hybrid Funds | 1,99,50,541 | 1,78,87,547 | 11.53% |
Data Source: AMFI
All the 8 categories of hybrid funds plus solution funds saw folio expansion in June 2024; with 3 out of these 8 reporting double-digit growth in folios. The best folio growth was seen, once again, in multi asset allocation funds at 105.37% yoy and this comes on a fairly high base. Arbitrage funds continue to replace liquid funds in HNI portfolios and these saw folios growth of 19.3% yoy. The other allocation segment of equity savings funds also saw investor folios growing by 17.14% yoy. Investors are seriously looking at hybrids like multiple asset allocation funds, BAFs and equity savings funds for allocation across multiple asset class with tactical management. Several anecdotal studies have shown that 80% of portfolio swings are caused by asset allocation. In fact, three of the top four by folios accretion are asset allocation funds, with arbitrage fund being the sole exception. More than NFOs, it is the financial planning compulsion that is making the big difference to allocation funds.
Other than the multi asset allocation funds, equity savings funds and arbitrage funds; all the other categories of hybrids only showed single digit growth. Balanced Advantage Funds (BAFs), which enjoys the highest AUM among hybrid funds, has been slow on folio growth at 6.59% with Retirement funds also growing at 5.38% on the back of the recent NFO. For hybrid category funds, number of folios grew by 11.53% in June 2024; compared to 10.58% in May 2024, 9.54% in April, 8.47% in March, and 7.43% in February. The yoy growth in hybrid fund folios has been progressively getting better each month.
PASSIVE FUNDS AGAIN LEAD ON FOLIO GROWTH IN JUNE 2024
Passive funds added 77.81 Lakh folios yoy. Passive category includes equity and debt related index products (index funds and ETFs), apart from gold funds and Fund of Funds (FOF).
| Passive Funds | Total Folios Jun-24 | Total Folios Jun-23 | Folio Growth |
| Index Funds | 87,30,472 | 44,95,761 | 94.19% |
| Other ETFs | 1,49,07,694 | 1,21,24,531 | 22.95% |
| GOLD ETF | 54,09,986 | 47,52,363 | 13.84% |
| Fund of funds investing overseas | 14,53,281 | 13,48,079 | 7.80% |
| Sub Total – Passive Funds | 3,05,01,433 | 2,27,20,734 | 34.24% |
Data Source: AMFI
Other than hybrid funds, even passive funds saw expansion in folios across all categories. The growth in YOY folios of passive funds is the highest among all categories. The Index funds dominated folio growth at 94.19%, followed by index ETFs at 22.95%, and gold ETFs at 13.84% in June 2024. Passive fund folio growth in June 2024 improved further to 34.24%; compared to 32.40% in May 2024, 29.56% in April, 27.57% in March, and 26.68% in February. Once again, folios growth is getting progressively better.
What are the takeaways from folio growth story in June 2024? Clearly, the financialization of savings is the big trend, but the trend for passives are back with a bang. The only question is when will debt funds get a new narrative. We, probably, need to wait for the August monetary policy statement!