Mutual Fund AUM Trends: Equity vs Passive vs Hybrid

WHAT ARE WE TRYING TO MEASURE HERE?

AUM shifts in the short run can be fairly misleading. However, if you look at AUM shifts over a 3-year period in CAGR terms, you get a total picture of flows and asset price movements. Here we have considered the fund classes with the best CAGR AUM growth over 3 years, but restricted to funds with minimum ₹1 trillion AUM in Feb-26. The list has 1 debt fund, 3 passive funds, 2 hybrid funds, and 7 active equity funds.

WHAT WE READ FROM THE STORY OF THE 3 BROAD CATEGORIES?

1. Over the last 3 years, the CAGR AUM growth of equity funds, hybrid funds, and passive funds have been almost at par with each other.
2. Debt funds struggled to match up to this growth, which can be attributed to the quarterly cyclicality of flows into debt funds, in sync with advance tax payouts.
3. What is more important is that hybrid funds and passive funds have quickly emerged as alternate asset classes that have grown in tandem with equities.
4. The growing heft of alternates is evident from the fact that the combined AUM of passive funds and hybrid funds is now nearly 75% of the AUM of equity funds.

CAGR AUM GROWTH OF SPECIFIC FUND CLASSES OVER LAST 3 YEARS

Having seen the broad categories, here is a deep dive into how specific fund classes have performed in terms of CAGR growth in AUM.

1. The best growth stories in terms of 3-year CAGR have been gold ETFs and multi-asset allocation funds (MAAFs). The CAGR growth has been around 100% in both cases.
2. While the base was small in both the cases, the other common factor is the outperformance due to the gold component. That applies to MAAFs too.
3. Arbitrage funds have seen a surge in the last 3 years, largely due to its tax efficiency and its ability to offer better risk-adjusted returns compared to liquid funds.
4. The only category of debt fund to be part of this list is money market funds, which have benefited from liquidity infusions at the short end of the yield curve.
5. In equity funds, the first growth set has been the alpha hunting set comprising of mid-cap funds, small cap funds, value funds, and sectoral / thematic funds.
6. The second growth set has been the allocation story, which is evident in the demand for multi-cap funds, flexi-cap funds, and large & mid-cap funds.

Large cap funds are not favoured by investors. For Beta participation, they see more value in low-cost index funds and index ETFs, which explains their presence in this list.