Active Equity Fund Categories with the Strongest AUM Growth

Active equity fund categories with best AUM growth signals

HOW ACTIVE EQUITY FUND AUM HAS GROWN?

Let us first look at the macro picture. The AUM of active equity funds has grown by 17.4% in the last 6 months, and 11.5% in the last one year. However, over a 3-year period, the CAGR growth in active equity fund AUM has been an impressive 25.3%. However, there have been wide variations in the growth of individual categories.

Growth in AUM of equity funds has a flow component and a capital appreciation component. Over a 3-year period, both normally play an important role. We have avoided 1-month growth as it becomes too myopic. Instead, we have focused on 6-month AUM growth, 1-year growth, and 3-year CAGR AUM growth of equity funds.

METHODOLOGY TO EVALUATE EQUITY FUND AUM GROWTH

In the first step we have calculated the 6-month growth in AUM of equity fund categories on point-to-point basis and ranked them as the first parameter.

In the second step we calculated the 1-year growth in AUM of equity fund categories on absolute basis and ranked them as the second parameter.

In the third step we have calculated the 3-year CAGR growth in AUM of equity fund categories and ranked these fund categories as the third parameter.

Once the above 3 parameter rankings were done, a combined rank is calculated based on the average of the 3 ranks and the best equity funds by AUM were then ranked, with the best funds having the lowest average combined rank.

WHAT WE READ FROM THE AUM RANKINGS OF ACTIVE EQUITY FUNDS?

The combined rankings by taking the average of the three ranks helps us to evaluate the AUM growth of equity funds over different time parameters.

The top half of the rankings shaded in light brown are the funds which have shown above average growth in 2 out of the 3 parameters considered. The ranking cut-off taken is 6.00 in this case.

The second half of the rankings, shaded in light blue, are the funds that have lagged the averages on 2 out of 3 parameters or on all 3 parameters. These funds have not shown any meaningful traction either in the longer period or the shorter period.

If you looked at the top half of the rankings, the two striking themes in this list are alpha hunting funds, and allocation funds. Typically, these are the two categories of funds that mutual fund investors have preferred in India.

Sectoral Funds and Thematic Funds are a borderline case. They have shown strong growth in AUM over the longer period of 3 years, but recent growth in AUM has been very tepid, which is evident in the growth numbers.

In the bottom quadrant, there are 2 themes that stand out. Large Cap Funds have not elicited substantial interest from investors due to the kurtosis effect as well as most investors preferring the lower cost index funds and index ETFs as an alternative.

The other striking laggard in terms of AUM growth was ELSS funds. They lost their relevance after shifting to new tax regime (NTR), entailing lower taxes even without big investments. That took away the biggest allure of ELSS tax-saving funds.

The remaining funds in the bottom quadrant, either have a much smaller AUM in comparison or they are lacking a strong positioning to be able to attract investor interest. Value, Contra, Dividend Yield and Focused are themes that are not easily understood by investors, nor do they identify with it.

The story of AUM growth in active equity funds in India has been largely about 2 themes viz. alpha hunting (small cap funds, mid-cap funds, and Thematic Funds) and diversified asset allocation (Multi-Cap, Flexi-Cap, and Large & Mid-Cap Funds).