The month and year were about mutual fund SIPs
The month of March 2023 and the full year FY23 were all about the rapid growth in systematic investment plans of mutual funds. SIPs, as they are popularly called, they not only touched a record in the month of March 2023 but also a yearly record in FY23. The month of March 2023 saw gross SIP inflows of Rs14,276 core, the highest ever level of SIP flows in any month till date. Also, the financial year FY23 saw overall SIP flows of Rs155,972 crore or an average of Rs12,998 crore per month. In a way, that has driven up the coffers of the mutual funds and made then net buyers in Indian equities to the tune of Rs1.80 trillion in FY23, at a time when FPIs continued to be net sellers in Indian equities.
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How SIP flows matured over last 6 years
The table below briefly captures how the SIP flows into Indian mutual funds have grown in the last 6 financial years.
| Financial Year | Annual SIP flows (Rs crore) | Average Monthly SIP Flows |
|---|---|---|
| FY16-17 | Rs43,921 crore | Rs3,660 crore |
| FY17-18 | Rs67,190 crore | Rs5,600 crore |
| FY18-19 | Rs92,693 crore | Rs7,725 crore |
| FY19-20 | Rs100,084 crore | Rs8,340 crore |
| FY20-21 | Rs96,080 crore | Rs8,007 crore |
| FY21-22 | Rs124,566 crore | Rs10,381 crore |
| FY22-23 | Rs155,972 crore | Rs12,998 crore |
Data Source: AMFI
If one looks at the progression of annual SIP flows; it has grown by 3.55 times between FY17 and FY23. That has been driven by a number of factors, but most importantly by a surge in millennials investing in equities through the mutual funds SIP route. Remember, even today, nearly 83% to 85% of the total SIP flows in any month are accounted for by equity funds. SIPs are basically a retail product and retail are still not too active in passive funds as of date. Hence, the SIP flows can almost be seen as a proxy for retail flows into active equity funds. The only exception to the growth in annual SIP volumes was in FY21, but that was an exceptionally tough year amidst the COVID pandemic. Otherwise, the trend has been a secular uptrend. In FY23, robust SIP flows were despite the plethora of global headwinds.
SIP folios grow in tandem with SIP flows
SIP volumes do not tell us much as they do not capture the retail spread or retail intensity. One way to fill this gap would be with the help of SIP folios. Now, folios are individual accounts that are unique to an AMC. If you have a folio with SBI MF, you can buy any fund of SBI AMC using that folio number. How have SIP folios grown? The number of SIP folios increased from 628.26 lakhs in February 2023 to 635.99 lakhs in March 2023; an increase of 1.23% on a MOM basis. Of course, these are gross additions and not net additions. Over the last 1 year, the SIP AUM grew by 18.6% from Rs576,358 crore to Rs683,296 crore. Of course, the AUM is not as significant as the folios numbers as the AUM value is impacted by the SIP flows and also by the market movements.
How folios of active equity funds grew in FY23?
We currently do not have a category-wise break up of SIP folio accretion. However, we have the data for overall folio accretion on a YoY basis. That should be a decent approximation of the way SIP folios have grown in the last one year. That is captured in the table below.
| Equity Fund Types | Total Folios Mar-23 | Total Folios Mar-22 | Folio Growth |
|---|---|---|---|
| Small Cap Fund | 1,08,99,311 | 78,70,459 | 38.48% |
| Multi Cap Fund | 41,42,895 | 30,82,531 | 34.40% |
| Dividend Yield Fund | 7,21,832 | 5,67,533 | 27.19% |
| Mid Cap Fund | 1,06,12,983 | 87,05,192 | 21.92% |
| Large & Mid Cap Fund | 78,09,179 | 67,29,990 | 16.04% |
| Value Fund/Contra Fund | 46,66,901 | 40,22,810 | 16.01% |
| Sectoral/Thematic Funds | 1,31,75,494 | 1,18,94,913 | 10.77% |
| ELSS Funds | 1,52,72,141 | 1,38,96,408 | 9.90% |
| Flexi Cap Fund | 1,27,01,619 | 1,16,48,458 | 9.04% |
| Focused Fund | 53,15,932 | 50,67,076 | 4.91% |
| Large Cap Fund | 1,29,73,512 | 1,24,44,858 | 4.25% |
| Folios for Equity Funds | 9,82,91,799 | 8,59,30,228 | 14.39% |
Data Source: AMFI
To understand the folio growth by category of equity funds, we have used overall folio growth as a proxy. The good news is that there is folio growth across all the categories of active equity funds, which accounts for 85% of all SIP flows. Interestingly, the big growth is visible in small cap funds, multi-cap funds and mid-cap funds where investors are seeing more of alpha opportunities. The logic appears to be to go for active funds where there is alpha and to go for passive funds as a proxy for large cap funds. At least, that is the way the folios have grown in FY23.
But keep an eye on the SIP stoppage ratio
Remember that when we talk about SIP flows, we are still referring to gross SIP flows. It does not factor in the SIPs that are terminated, discontinued, or simply not renewed. That is captured in the SIP stoppage ratio; which is the ratio of SIP accounts discontinued to the new SIP accounts opened. It is a barometer of investor stickiness. In FY20 and FY21, the SIP stoppage ratio was as high as 57.84% and 60.88% respectively. But, that was amidst COVID uncertainty so it is understandable. While SIP stoppage ratio fell to 41.74% in FY22, it has bounced back to 57.74% in FY23. That is not a comforting scenario.
The good news is that SIPs are growing at a gross level, but there is a word of caution on the rising SIP stoppage ratio. That is something to watch out for in coming months.
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