Credit funds data often reflect inflows and outflows, although the AUM rating is based on market-based pricing. The reason is that in debt, the market fluctuates only. In contrast, the market has risen over the past year and the AUM movement reflects more market activity than investor activity. The preference for dormant funds and ETFs is a clear change. Our data points start from April 2019, when AMFI begins to publish more detailed financial-type data than the broader types previously published. Let’s look at the data for April 2019, March 2020, and March 2021, which will give us a sense of direction.
Liquid funds are used to dominate the credit space and remain so. However, the level of dominance is lower than before. As of March 2021, liquid funds AUM averaged Rs 3.67 lakh crore (INR 3.67 trillion) for the month, while AUM accounted for Rs. 13.88 trillion (INR 13.88 trillion) a month on average, representing 26.5%. In March 2020, it was Rs 3.82 lakh crore at Rs 11.48 lakh crore, or 33.3%. In April 2019, it was up 45.5% from Rs 1.2 lakh crore to Rs 5.1 lakh crore. Liquid finance investors are often corporate because they need short-term deployment. The seven-day exit load is an audit. Low returns from liquid funds may allow corporate investors to invest on the investment time horizon and motivate them to switch to other categories.
The other obvious change is the preference for quality, i.e. lower credit risk. In April 2019, debt risk funds AUM stood at Rs 80.7 trillion, representing 7.2% of total open debt AUM at Rs 11.2 lakh crore. Although it is not on the high side of a ratio, it has gradually lost investors' interest. In March 2020, the AUM of debt risk funds fell to Rs 58.3 trillion, which is 5.1% of the total AUM of Rs 11.48 lakh crore. Defaults and locks and growth slowdown in various companies led to concerns. Then, in April 2020, the Franklin Templeton incident took place. Although there was no recovery from the six frozen funds, it did affect sentiments about other debt risk funds. As of March 2021, this category had assets of Rs 28,000 crore, which is the total AUM. Only 2% of Rs 13.88 lakh crore.
When liquid and debt risk funds lost corpus, what did they gain? Corporate bond funds and bank and public sector funds have become popular. These categories represent better credit quality, i.e. protection than debt risk funds. Corporate securities accounted for 5.4% of the total AUM in April 2019, up from Rs 60.4 trillion, to Rs 83,000 crore in March 2020, which is 7.3% of the total AUM. In March 2021, it was Rs 1.55 lakh crore, which is 11.2% of the debt AUM. Similarly, banking and PSU funds moved from Rs 34.6 trillion in April 2019 (3.1% of the total) to Rs 75,000 crore (up 6.5% of the total) in March 2020 and now stand at Rs 1.2 lakh crore, accounting for 8.8% of the total open debt. The other type of corpus to obtain is short-term funds, which also indicate decent credit quality. From Rs 80.7 trillion in April 2019 (7.2% of the total), it has increased to Rs 99,000 crore (8.6% in total) in March 2020 and Rs 1.48 lakh crore (10.7% in total) in March 2021.
In addition to the main type of changes mentioned above, there were also minor fluctuations. Let’s look at short-term, short-term, and money market funds together, as they represent less than a year of portfolio maturity, except for a very short maturity of one day and liquid funds. Taken together, these three categories account for 23.4% of total open debt AUM in March 2021. In March 2020, it was 22.1% of the total, and in April 2019 it was 21%. If the investor has the required time limit, some money may have been transferred from liquid funds to these categories. These types require a longer duration than liquid as the portfolio maturity is longer. Overnight funding ranged from 1% to 7.9% of AUM, from 2019 to 2020, but then flattened. In March 2021, overnight funds accounted for 6.4% of the open-ended AUM. Income is on the bottom side. Dynamic funds are not so popular because the Reserve Bank's rate cuts are now over, but some AMCs have a certain position on their dynamic funds. Corpus changed its AUM from 1.6% in March 2020 to 1.9% in March 2021.
The market focus is on short to moderate maturity funds (low volatility) with relatively good credit ratings (low credit risk). Security is now a priority; Vision-based gains (e.g. declining interest rates) may occur later.