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NEW DELHI: In an eventful year for the domestic mutual fund industry, assets under management (AUM) of fund houses, excluding domestic fund of funds (FoF), surged in 2021 to close at a record 37.73 trillion, according to a report by global analytics company, Crisil Ltd.

The industry added 6.70 trillion, a record absolute asset gain for any calendar year on record. As per Crisil, the previous peak was 4.80 trillion in 2017, followed by 4.5 trillion in 2020. In percentage terms, the industry gained 22% in 2021 compared with 17% in 2020.

Further, in a break from 2020, equity-oriented funds hogged the lion’s share.

Crisil has listed key trends from the record-breaking year for the mutual fund industry.

2020 and 2021 asset flows see divergent plot lines

According to Crisil, net flows in 2020 and 2021 were similar at around 1.81 trillion, but plot lines were starkly different. While 2020 had seen sharp inflows into debt-oriented mutual funds, 2021 saw equity-oriented mutual funds cornering the bulk.

“To be sure, the net inflows into debt-oriented funds in 2020 had come despite the liquidity crisis, with as much as 1.94 trillion of outflows in March — the most since September 2018, which had seen 2.10 trillion of outflows following the IL&FS credit crisis — as the pandemic and the ensuing economic lockdown left investors chary," it write in a report.

In contrast, 2021 saw investors put a larger amount of their money in equity-oriented mutual funds, drawn by the strong gains in the underlying equity market. Equity mutual funds saw net inflows of 91,000 crore, while passive funds got 1.14 trillion and hybrid funds 1.02 trillion. Passive funds and hybrid funds benefitted from a spate of new fund offers, at 41 and 8 funds, respectively.

ETFs become the largest MF category

Benefitting from the strong inflows from the EPFO and other pension trusts, together with new launches and individual investor interest, assets of exchange-traded funds (ETFs) surged to overtake liquid funds as the largest MF category in 2021. The category closed 2021 with assets of 3.84 trillion compared with 3.61 trillion for liquid funds.

“Liquid funds lost sheen as their returns dipped in line with low interest rates, making other money market MF categories more attractive for investors with higher risk appetite. The category’s assets are also now treated on a par with those of other debt MF categories as mark to market, rather than the amortisation rule that it benefitted from previously," Crisil said.

SIP inflows make 2021 calendar year record

The industry logged net inflows of 1.14 trillion in 2021 through systematic investment plans (SIPs), crossing the 1 trillion mark for the first time in any calendar year since AMFI started declaring this data.

The last month of 2021 also saw SIP flows come in at their record monthly high of 11,300 crore, after crossing the 11,000-crore mark for the first time in November 2021.

Furthermore, the number of SIP accounts rose to 4.91 crore, accounting for 5.65 trillion of the industry’s assets as of December.

Floating-rate, target maturity and ESG funds gain traction

The year 2021 saw categories such as floating-rate debt funds and passively managed debt funds in the form of target maturity funds gain traction within the industry. While floating-rate debt funds benefitted from their ability to latch on to the interest rate movement, investor focus on credit quality amid views of rising interest rates brought in traction for target maturity debt funds.

“On the equity front, we also saw increasing traction in the environmental, social and governance (ESG) space, as the theme of ‘conscious investing’ became popular among investors," Crisil said.


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