MF AUM touches 18-month high

The mutual fund industry's month-end assets under management (AUM) recovered most of their losses from September to gain by around 7 per cent (Rs480 bn) to Rs7.68 trillion in October 2012 (see table).

This is the highest month-end AUM of the industry since April 2011. The rise was due to inflows of Rs467 bn, most of it to income and liquid funds. The numbers were part of the monthly release by the Association of Mutual Funds in India (AMFI).

Most inflows seen in income funds
Income funds reported the highest inflows among mutual fund categories at Rs293 bn. The category assets increased by around 9 per cent (Rs311 bn) to Rs3.84 trillion in October. With the Reserve Bank of India (RBI) maintaining a status quo on interest rates in the latest monetary policy, investors continued to prefer dynamic bond funds, short-term and ultra short-term debt funds within the category. These funds benefit when there is interest rate uncertainty.

Equity funds register outflows for the fifth month in a row
Equity funds registered outflows for the fifth consecutive month in October due to profit booking by investors. In the latest month, the category saw outflows of Rs 20 bn (Rs 36 bn in September and over Rs 90 bn in the past five months) with assets falling to Rs 1.84 trillion.

The benchmark S&P CNX Nifty has risen by over 21 per cent on a year to day basis and by over 7 per cent over the past three months ended 31 October 2012. However, the index fell by 1.5 per cent in the latest month due to weak domestic indicators.

Gilt funds witness highest monthly inflows in four years
Gilt funds saw inflows of Rs10 bn, the highest monthly inflows in the category since October 2008. The category assets rose by 31 per cent to around Rs44 bn at the end of the month. The category is expected to benefit when the RBI reverses its stance on interest rates as prices and yields move in opposite directions. A fall in interest rates would result in a rise in bond prices and positively impact gilt fund NAVs.

Liquid funds saw cyclical inflows
Liquid funds saw inflows of Rs182 bn in October, taking the category assets up by around 14 per cent to Rs1.64 trillion at the end of the month. Inflows during every quarter (in this category) are cyclical in nature.

Historical trends show that quarter-end outflows in the category are reversed in the subsequent month (outflows in September; inflows in October). Corporates being the major investors in this category, withdraw to meet quarter end advance tax requirements and re-invest in the subsequent month. Improvement in liquidity in the system post the cut in statutory liquidity ratio (SLR) and cash reserve ratio (CRR) by the central bank in recent months also aided inflows.

Gold ETFs post highest monthly inflows over a year
Gold exchange traded funds (ETFs) saw inflows of Rs 3.87 bn in October (Rs.3.32 bn in September), the highest monthly inflows in the category since October 2011. The month-end assets of gold ETFs rose to Rs 115 bn. The category logged inflows despite gold prices (represented by the CRISIL Gold Index) declining by 1.13% in October tracking global trends.

Table 1 – Month-on-Month Mutual Fund Flows and AUM distribution

Source - AMFI