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Mutual Fund Newsletter – October 2020

At the outset, we at FYERS wish a happy Dhanteras and a prosperous Diwali, to you and your family. Hope the festival of lights brings you abundance of joy and wealth, while staying safe and healthy. We would also like to thank you for the warm response to our new initiative – Mutual Fund Newsletter – as we continue to share our in-depth research and insights, to guide and support your investing journey. In this newsletter, we bring you an overall scenario, with respect to AUM, ongoing schemes, most preferred stocks by mutual fund managers, stocks bought and sold in the month, money flows and many other insights.

Before going into AMCs and related info, a quick look at the recent circulars issued by Securities Exchange Board of India (SEBI), with respect to mutual funds. There are two circulars of importance, which cover:

    1. Product labeling in mutual fund schemes – Risk-o-meter,
      1. where each scheme shall be assigned one of the six levels of risk, namely, Low Risk, Low to Moderate Risk, Moderate Risk, Moderately High Risk, High Risk and Very High Risk, as depicted below. This is applicable for all existing schemes and NFOs.

      The  detailed  guidelines  for evaluation  of  risk  levels  of  a  scheme along  with  few  examples  are  provided  at: https://www.sebi.gov.in/legal/circulars/oct-2020/circular-on-product-labeling-in-mutual-fund-schemes-risk-o-meter_47796.html

    2. Introduction of “Flexi Cap Fund “as a new category under equity schemes
      1. As per the earlier issued guidelines related to categorization and rationalization of MF schemes, every scheme has to be true to its nature and objective. To address the multi-cap asset allocation issue, SEBI has introduced a new category, which can help MF managers to either convert the existing scheme into a flexi cap or allow them the opportunity to launch a new fund offering (NFO) under the new category, if required. The circular is available at: https://www.sebi.gov.in/legal/circulars/nov-2020/circular-on-introduction-of-flexi-cap-fund-as-a-new-category-under-equity-schemes_48108.html

There are 42 active AMCs operating in India as of 31stOctober 2020. The various AMCs and their AUMs are:

The total AUM stands at Rs.28.52 lakh crore. However, only 21 AMCs account for lion’s share of assets in the mutual fund industry. Rest 21 AMCs together account for the balance Rs.61,130.95 crore.

Monthly data released by AMFI indicates that Average Assets Under Management (AUM) for October stood at Rs.28.34 lakh crore vs. Rs27.74 lakh crore in Sep 2020. Net flows for the month stood at Rs.98,576crore in comparison to Rs. (-)52,091 crore in the previous month. This buoyancy was possible due to net inflow of Rs.1.10 lakh crore into income/debt-oriented schemes.

Let us examine each of the sub categories mentioned in the above table. Net flows into debt-oriented funds returned in large quantity, after a poor showing in September, where there was a net outflow of 51,962 crore. Liquid funds, money market funds, corporate bond funds, short duration funds and ultra-short duration funds saw the best inflows at around Rs.15,000 crore each. Credit risk funds and long duration funds continued their outflow in this month too.

Equity MFs continued their outflow for the fourth consecutive month, as investors withdrew Rs.2,725 crore. All equity schemes, barring large & mid-cap and sectoral funds, saw outflows. Equity schemes witnessed an outflow of Rs.734 crore in September, Rs.4,000 crore in August and another Rs.2,480 crore in July, which was their first withdrawal in over four years. Prior to this, such schemes had attracted Rs.240.55 crore in June.

Risk propensity has increased tremendously, which is supported by new demat account openings of more than six million since March 2020. October month outflows could be seen as a case of smart money booking their large gains of the last 6-7 months.

In the hybrid category, outflows still continue unabated. Investors shunned balanced funds and moved into riskier segments, resulting in a net outflow of Rs.1681 crore. In calendar year 2020, hybrid funds saw net outflows amounting to Rs.42,000 crore. Barring arbitrage fund net flow of Rs.1739 crore, there was nothing to write home about this category.

Solution oriented scheme inflows were negligible. In the ETF category, while there was a net flow of Rs.3515 crore last month, October saw heavy redemption, owing to profit booking, resulting in a net flow of Rs. (-) 2661 crore. Investments into Gold ETFs dropped Rs.210 crore as compared to the previous month.

Barring, March month, Gold ETFs saw positive flows in all months of the calendar year. But the changing trends are visible. Increasing economic activity, buoyant equity markets, uncertainty ending with US presidential elections, hopes of a corona virus vaccine are pushing investors to opt for riskier investments, through direct equities. At the same time, investors are expected to make purchases on the auspicious occasion of Dhanteras, which could be seen in next month AMFI data.

Among the closed ended categories, fixed term plans (FTPs) saw a redemption of Rs.4081 crore due to maturity of the portfolio holdings, as other schemes too witnessed selling pressure. In all, the closed ended schemes had negative net flows of Rs.5623 crore.

A quick look at the overall picture of mutual fund flows for the calendar year. Hybrid and closed ended schemes saw the most negative flows accounting for Rs.77,000 crore. All in all, Rs.151,249 crore was the fresh inflows into all categories across all schemes offered by the 42 AMCs. Equity funds accounted for Rs.10,000 crore of net outflows in the last four months, definitely attributable to profit booking across schemes.

The SIP inflow continues to be flat on a month on month basis. As work from home became the new normal, investors in general, who rarely had the time for active investing, started doing so, as evidenced from the new demat account openings. Nevertheless, Rs.7800 crore is still a substantial amount, accumulating to Rs. 55,627 crore for the financial year and Rs.81,313 crore for the calendar year.

Indian mutual funds currently have about 3.37 crore (33.72 million) SIP accounts, through which investors regularly invest in Indian mutual fund schemes. The new SIP additions have been steady at around 9.77 lakh on an average, while the number of SIPs discontinued due to maturity & stoppage stand at an average of 7.58 lakh.

While this information covers the analysis of AMFI data, FYERS Research team worked towards providing specific insights to help investors to invest better, not only in MFs but also in direct equities.

Given below are Top 35 stocks and the number of schemes holding each stock, with scheme holdings at various percentage levels and the total market value of the shares held across all schemes.

Every month, fund managers continue to make periodic changes to the scheme portfolio by addition or removal of stocks based on individual analysis. FYERS research has collated the list of 30 stocks each, where exposure to the stocks has either increased or decreased during the month of October.

Top 30 stocks with MFs increasing their exposure in October are:

Similarly, the top 30 stocks where fund managers reduced their exposure during the month are:

Based on changes in the fundamentals of a company or news flow or other reasons that impact a particular stock, fund managers do buy and sell large volume of stocks. After an extensive research, top 30 stocks which where bought during the month are highlighted for the benefit of direct equity and mutual fund investors.

Similar to the above compilation, large volume of stocks which were sold by all mutual funds put together in the month of October are:

There are many insights that can be drawn from the data & analysis provided. FYERS Direct team continues its research in direct equities and mutual funds, to bring you the best of information and insights, to convert them into actionable items, supporting your investments. All through the month, FYERS research team will share information that clients can benefit from, at our twitter handle and by the 15th of every month, the newsletter will be made available on our website.

A excel workbook is made available to readers each month, highlighting all the schemes across equity, debt, hybrid, index and ETFs, their NAVs, minimum investment amounts, AUMs, expense ratios, exit loads, risk ratios as well as returns – absolute, annualized and calendar returns.

Mutual Funds Summary & Performance

Hope investors make the best use of the data, analysis and insights at hand, to further their journey of investment building with FYERS Direct Mutual Funds.

Stay Safe and Happy Investing!

Gopal Kavalireddi

Gopal Kavalireddi

A data maverick on the loose! 24/7 research, analyzing the stock market upside down and from the inside out. His vast educational accomplishments and 2 decades of in-depth experience from the corporate world helps to join the dots when it comes to investing in stocks. You can expect well-researched themes/portfolios, not stock tips!

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