Mutual funds roar back in 2023: Rs 9 lakh cr surge in asset base on strong markets, economic growth

New Delhi: The mutual fund industry has bounced back strongly this year after a lacklustre 2022 with a remarkable Rs 9 lakh crore surge in the asset base, propelled by a buoyant equity market, stable interest rates and robust economic expansion. Experts believe that the positive momentum should continue into the near year as well.

With a substantial increase, the overall inflow this year has reached Rs 3.15 lakh crore, accompanied by a growth of over 2 crore in the investor count. This was supported by the increasing popularity of Systematic Investment Plans (SIPs), which drew in Rs 1.66 lakh crore, according to the data shared by the Association of Mutual Fund Industry (Amfi).

The inflow has pushed the assets under management (AUM) of the mutual fund industry by 23 per cent or Rs 9 lakh crore in 2023, the data showed.

This was way higher than the 7 per cent growth and Rs 2.65 lakh crore increase in AUM observed throughout 2022, as well as the nearly 22 per cent growth and close to Rs 7 lakh crore addition to the asset base in 2021.

Over the last three years, the industry has collectively added an impressive Rs 18 lakh crore to its AUM.

As per the data, the AUM of the mutual fund industry rose to an all-time high of Rs 49 lakh crore in 2023 (till November-end) from Rs 40 lakh crore at the end of December 2022. This year's tally does include December'number which will come out in the first week of 2024.

The asset base stood at Rs 37.72 lakh crore at the end of December 2021 and Rs 31 lakh crore in December 2020.

The 2023 also marked the 11th consecutive yearly rise in the industry AUM after a drop in the two preceding years. This year, the growth was supported by inflows into equity schemes, especially through Systematic Investment Plans (SIPs).

Aditya Birla Sun Life AMC Managing Director and CEO A Balasubramanian said the positive trend will continue in 2024 and attributed the huge increase in the asset base to rising equity markets, stable interest rates, and rising economic growth.

"Investors continue to invest in mutual funds with a long-term horizon and newer investors are also increasingly investing in mutual funds as can be witnessed by a healthy increase in new folios over the year.

"This is a testament to the work that has been done by the entire MF ecosystem to educate and handhold investors through their investing journey," said Kaustubh Belapurkar, Director - Manager Research, Morningstar Investment Research India.

High-impact awareness campaigns like 'Mutual Funds Sahi Hain' are paying rich dividends, he said.

Additionally, substantial growth in AUM was influenced by positive movements in the equities market, especially during significant uptrends in broader markets.

The Sensex has delivered a return of 19 per cent, majorly supported by earnings growth. BSE Midcap and BSE Smallcap indices have delivered returns of 45 per cent and 47 per cent respectively.

Also, the 42-player industry witnessed the entry of new fund houses like Bajaj Finserv, Helios, and Zerodha, each introducing their schemes in 2023. Additionally, Old Bridge Capital secured final approval from the capital market regulator Sebi to initiate its mutual fund operations.

The industry saw net inflows of Rs 3.15 lakh crore in 2023 (till November) as compared to an inflow of over Rs 71,000 crore last year. The huge inflow could be on the back of sustained investor interest in equity funds, arbitrage funds, and index funds & ETFs.

This year's flows included an investment of Rs 1.44 lakh crore in equity-oriented schemes, over Rs 72,000 crore in hybrid schemes, and around Rs 29,500 crore in debt schemes.

Equity schemes, which were the most attractive factor for investors in the mutual fund space in 2023, have been witnessing incessant net inflow on a monthly basis since March 2021.

"Amidst global economic uncertainties, India's robust performance has instilled confidence, attracting not just seasoned investors through mutual funds but also drawing in a wave of newcomers. The rising trend in SIPs showcases India's growing appeal for long-term investment in its growth narrative," said Vishal Jain, CEO at Zerodha Fund House.

Investors have shown confidence in SIPs, with inflows surging to an impressive Rs 1.66 lakh crore in the year. This has surpassed the entire amounts for 2022 (Rs 1.5 lakh crore), 2021 (Rs 1.14 lakh crore), and 2020 (Rs 97,000 crore) Monthly inflows through SIP, which have been the bedrock of mutual funds flows for many years now, have attracted above the Rs 17,000-crore mark in November.

Further, the Securities and Exchange Board of India (Sebi) is looking for smaller ticket-sized SIPs, which according to experts will open the investment doors for the lower-income group of the population and further increase the penetration in the industry.

In the debt category, the majority of the fixed-income asset base is from institutional investors. Money market funds, corporate bond funds, and target maturity index funds witnessed the highest inflows. This was largely driven by higher yields with limited duration risks in these funds.

Target maturity index funds were beneficiaries of heightened flows up to March 2023 as investors looked to invest before the debt taxation changes took effect.

Gold, which acts as a good portfolio hedge, especially during volatile markets, adverse economic scenarios and geopolitical events, witnessed an inflow of nearly Rs 2,200 crore.

"Over the years, investors’ comfort with digitization, ease of access, and a wider palette of products to choose from has been a reason for Gold ETFs becoming an option," Jain said.