Money magnets of 2022

If you thought our movie industry had the sole patent on creating stars, think again. Say hello to mutual funds, a universe that keeps churning rising stars, falling stars and shooting stars each year. And 2022 was no different: some funds caught the popular imagination, while a few heroes of the previous years dropped out of favour.

While the broader narrative seems simplistic, 2022 was rather complex on closer inspection. After two years of bull run preceding it, equity mutual funds were pushed to the wall due to a rash of economic factors, such as rising rates, inflationary pressures and recessionary fears. But the gloom didn't prevent the mutual fund industry from unleashing a record-breaking 103 new open-ended equity funds in one calendar year, topping the previous year's 88.

The new funds raked in around Rs 39,600 crore (15.5 per cent of all the industry inflows last year). Of them, Rs 33,100 crore poured in at the launch and an additional Rs 6,500 crore came in subsequently.

Investors moved in mysterious ways as well. Conventionally, people shun funds that deliver negative returns, and vice-versa. But that wasn't always the case, as you'd notice in the following two sections.

Please note there is no direct way to identify inflows/outflows from any fund as no disclosures are available. So, we estimate them based on the daily AUM and NAV disclosures. In our study, we considered only open-end equity funds (excluding the 103 funds launched in 2022, which have been covered as a separate set). Also, there were about five funds for which the daily AUM data was unavailable.

The heroes
The popularity stakes remained the same, more or less. The top-three funds - SBI Nifty 50 ETF, SBI S&P BSE Sensex ETF, Parag Parikh Flexi Cap - that attracted the highest investor inflows were the same as that of 2021.

In fact, six of the top-10 funds of last year were present in 2021 as well.

Interestingly, Parag Parikh Flexi Cap Fund and SBI Focused Equity Fund remained among the table-toppers of 2022, despite delivering dud returns. While Parag Parikh's fund - the only flexi-cap fund in the top 10 - shrunk investors' wealth by 7.22 per cent, the SBI offering bled 8.48 per cent.

But their underperformance didn't distract investors. On the contrary, strong inflows into these funds have made them the 12th and 13th-biggest actively-managed equity funds in the country. We'd like to step in and commend this investing trend of not chasing short-term returns.

In total, three top-10 funds failed to grow investors' wealth. PGIM India Midcap Opportunities Fund (-1.66 per cent) is the third on the list.

Four index-based ETFs of SBI and UTI received massive investments from the Employees' Provident Fund Organisation (EPFO) last year. Which is why they are in the top-10 list.

We have yet to get the official figures of the EPFO's investments in these funds. But as per the reply to a question in Lok Sabha, about Rs 12,200 crore was poured into these funds for the quarter ending June 2022. To provide context, the figure stood at Rs 43,568 crore in the previous financial year of 2021-22.

The side casts
Interestingly, seven of the least popular equity funds posted positive returns in 2022, but that was no guarantee for investors' affection.

Three actively-managed flexi-cap funds find themselves here. Kotak Flexicap Fund found that out the hard way. Despite having a respectable return of 4.99 per cent in 2022, the fund saw the maximum investor withdrawals. That said, it continues to be the largest actively-managed mutual fund. Thus, in this context, the large outflow isn't alarming.

Investors gave a double thumbs down to thematic funds. There are seven such funds in the ignominy list. Despite listing positive returns by most of them (the bank ETFs even delivered more than 21 per cent returns) - except for SBI Nifty IT ETF and ICICI Pru Nifty IT ETF - these schemes received little traction last year.

The most popular fund houses of 2022
The State Bank of India (SBI) stable (SBI Mutual Fund) was a runaway leader for the second year. Even if we remove the EPFO money from their total net inflows, SBI Mutual Fund would still be among the top five AMCs by net flows. By that logic, UTI Mutual Fund would have to make way for HDFC Mutual Fund.

PPFAS Mutual Fund is a new entrant, all thanks to Parag Parikh Flexi Cap Fund's prowess in attracting investors.

Top funds by net flow across categories

As expected, flexi-cap funds remained the top gun, despite some popular funds shooting blanks this year.

At the other end of the spectrum, inflows in international funds saw a sharp drop this year compared to 2021. This was primarily due to the industry breaching the regulatory limit on foreign investments of $7 billion. RBI has been mum for almost a year on the industry's efforts to raise the foreign investment limits.

Another interesting trend is that flexi-cap funds remain more popular than value funds. This is despite an average value fund outperforming an average flexi-cap colleague over the last three calendar years. It looks like investors have failed to overcome the pain subjected by value funds in the preceding three to four years.

Top new funds launched in 2022
Despite the record-breaking fund launches last year, inflows in new funds seem to have dropped from about Rs 50,000 crore to about Rs 40,000 crore this year.

Interestingly, about 70 per cent of the newbies are passive. However, they only make up about 10 per cent of the total inflows into new funds.

So, which new funds actually garnered investor attention? There were 16 funds among the multi-cap, sectoral/thematic and flexi-cap universe that raked in roughly 80 per cent of the moolah.

Active vs Passive
Active funds extended their dominance last year. We estimate that active equity funds managed to rake in about 40 per cent more AUM than passive funds, compared to 27 per cent in 2021.

Inflows in the four SBI and UTI ETFs, the EPFO beneficiaries, make up more than 30 per cent of all the inflows in passive funds.

Among the new funds launched in 2022, active funds remained hugely popular, receiving about 94 per cent of the inflows.

Suggested read: Winners and losers of 2022's IPOs