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Indian Mutual Funds in November 2024: AUM Declines After Two Years – What It Means for Investors
November 2024 marked a notable moment for Indian mutual funds as average assets under management (AUM) declined for the first time in nearly two years. With equity funds leading the drop and debt funds offering some stability, this blog delves into the factors behind these changes and their implications for investors and the industry.
MUTUAL FUNDS
By Rishabh Agarwal
1/13/20253 min read
Understanding the November 2024 Mutual Fund Dynamics
The mutual fund industry in India, a key barometer of investment trends, witnessed a rare dip in November 2024. For the first time in nearly two years, the average assets under management (AUM) fell by 0.7% month-on-month (MoM) to INR 68 lakh crore. This decrease reflects shifts in investor behavior and market dynamics that warrant a closer examination.
The Decline in Equity Funds
Equity-linked funds, which constitute a significant portion of the industry, experienced a notable contraction. Their AUM dropped by 1.8% MoM to INR 38.1 lakh crore, marking the first decline in three months. This reduction underscores the impact of heightened redemption pressures and reduced fund mobilization across both new and existing schemes.
The decrease in equity AUM aligns with broader market trends, where investors appeared cautious despite relatively robust systematic investment plan (SIP) inflows. SIP investments remained a bright spot, contributing INR 25,320 crore, with SIP AUM reaching INR 13.5 lakh crore. SIPs now account for nearly 20% of the mutual fund industry’s total AUM, demonstrating their resilience amidst fluctuating market conditions.
Debt Funds Offer Stability
Contrary to the equity fund segment, debt funds provided a stabilizing force in November. Their AUM increased by 1.6% MoM to INR 19.4 lakh crore, reflecting a preference for safer, fixed-income investments during uncertain times. Actively managed debt funds, in particular, gained traction, growing by 1.9% MoM to INR 17.3 lakh crore.
This trend underscores investors’ inclination toward active management in fixed-income portfolios, highlighting their desire for professional oversight and adaptability in navigating interest rate and credit risk environments.
Hybrid Funds and Close-Ended Schemes: A Mixed Bag
Hybrid funds, which offer a blend of equity and debt exposure, experienced their first decline in AUM in nearly two years. The segment saw a marginal 0.6% MoM reduction, bringing total AUM to INR 9.2 lakh crore. This decline reflects shifting investor preferences and possibly a reevaluation of hybrid investment strategies in a dynamic market landscape.
Close-ended schemes, meanwhile, continued their gradual decline, with AUM slipping slightly to INR 26,567 crore. Representing just 0.4% of the industry’s total AUM, these schemes remain a niche segment with limited impact on the broader mutual fund landscape.
The Role of Actively Managed Funds
Actively managed funds remain the cornerstone of India’s mutual fund industry, accounting for a dominant 82.8% of the total AUM at INR 56.3 lakh crore. In equity, actively managed portfolios made up INR 29.8 lakh crore, despite a 2% MoM decline, while passively managed funds totaled INR 8.3 lakh crore, down 1.4% MoM.
Similarly, in the debt category, active management dominated, with AUM at INR 17.3 lakh crore compared to INR 2 lakh crore in passive funds. These figures highlight a continued preference among Indian investors for active management, particularly in complex market environments.
What Drove the Decline?
The decline in November’s AUM can be attributed to several interrelated factors:
Lower Fund Mobilization: Fund mobilization fell 17.6% MoM to a six-month low of INR 10.2 lakh crore. This reduction reflects investor caution amid evolving economic and market conditions.
Increased Redemption Pressures: Redemption levels rose, further weighing on the overall AUM.
Moderating Net Inflows: November’s net inflows into mutual funds were significantly lower, amounting to just a quarter of October’s record-breaking INR 2.4 lakh crore. This sharp drop-off illustrates the volatility in investor sentiment over a short period.
The Road Ahead: Implications for Investors and the Industry
While November’s data points to challenges, it also provides insights into emerging trends:
SIP Resilience: The sustained growth in SIP AUM and inflows underscores the importance of disciplined, long-term investment strategies, even during periods of volatility.
Preference for Active Management: Investors continue to favor actively managed funds, particularly in uncertain market conditions. This trend reinforces the value of professional expertise in navigating complexities in equity and debt markets.
Evolving Investor Preferences: The contrasting performance of equity and debt funds highlights the need for a diversified portfolio approach. Investors may increasingly turn to hybrid funds and other balanced options to navigate market fluctuations.
A Turning Point for Mutual Funds?
November 2024 may represent a temporary pause in the mutual fund industry’s growth trajectory, but it also offers valuable lessons. The resilience of SIPs, the continued dominance of active management, and the contrasting performance of equity and debt funds all point to the evolving nature of investor behavior.
For investors, these trends emphasize the importance of staying informed, maintaining discipline, and adopting a diversified approach to achieve long-term financial goals. For the industry, the focus must remain on innovation, transparency, and adaptability to sustain growth in a dynamic market environment.