Table of content
6 mins read . 31 Jan 2023
The big story of mutual funds in the last few years has been the phenomenal growth in the quantum of systematic investment plans (SIPs). SIP flows in India have been driven by several triggers. Firstly, the equity cult took off in a big way, largely due to the TINA factor in the light of falling bond yields. Secondly, the rise of the millennial investor also led to a surge in the SIP investments as investors found it a convenient method of investing in shares. Lastly, with financial planning and goal planning taking off in a big way in India, mutual funds have become the obvious choice due to their flexibility. For such long term goals, there has not been a better answer than SIPs mapped to individual goals.
The table below captures the build of SIPs as an asset class within mutual funds and how they have steadily grown in terms of gross monthly collections.
Monthly SIP Inflows
Data Source: AMFI
The monthly SIP flows have been consistently trending higher. In the last one year, monthly SIP flows have increased by 20% from Rs11,305 crore to Rs13,573 crore. The good news is that this has also been matched with rise in SIP folios. December 2022 marked the fifth consecutive month of higher SIP flows. Let us also look at a cumulative picture. For the FY22, the SIP flows touched Rs124,566 crore. If you were to annualize the 9 month flows for FY23, we should be closing the year with total SIP flows of Rs152,205 crore or 22.19% higher on a yoy basis. Despite higher levels of SIP flows, there is no relenting on the interest shown by new and existing investors in SIPs as a product.
The average monthly SIP ticket (AMST) is nothing but the full year SIP flows expressed on a monthly basis. Barring the blip in COVID-hit FY21, AMST is rising since FY17.
SIP Ticket (AMST)
|FY 2016-17||Rs3,660 crore|
|FY 2017-18||Rs5,600 crore|
|FY 2018-19||Rs7,725 crore|
|FY 2019-20||Rs8,340 crore|
|FY 2020-21||Rs8,007 crore|
|FY 2021-22||Rs10,381 crore|
|FY 2022-23||Rs12,684 crore|
The steady growth in SIPs in the current year is special. One can say that FY22 was the full year or recovery after the COVID scare. However, FY23 had its own set of problems. The index was volatile, FPI outflows were above $34 billion in nine months and global headwinds were scary. However, SIP flows have built AMST despite all these headwinds and SIP flows have stayed robust.
SIP flows can be misleading if seen without growth in folios. How have folios performed? The number of SIP folios (accounts unique to an AMC) increased 1.3% from 604.57 lakhs in November 2022 to 612.43 lakhs in December 2022. The folio growth shows retail intensity and SIP folio data for FY23 is showing that the SIP growth is not jut about deepening but also about widening the retail base. If you look at the SIP AUM, it has fallen from Rs683,852 crore in November 2022 to Rs674,666 crore in December 2022. This fall can be attributed to the asset values depleting with the sharp fall in the Nifty and the Sensex. SIP AUM accounts for over one-third of overall retail Mutual Fund AUM; and that ratio has remained steady.
This represents the ratio of SIP accounts discontinued in a certain period to new SIP accounts opened and is reflective of how sticky the SIP investors are. Obviously, lower the SIP stoppage ratio, better it is. FY20 and FY21 were exceptional years due to COVID stress and the SIP stoppage ratio had surged to 57.84% and 60.88% respectively in these years. However, in FY22 the SIP stoppage ratio fell sharply to 41.74%, which is more of an acceptable range. However, FY23 numbers have been slightly disconcerting. For December 2022, SIP stoppage ratio touched 66.22% and for FY23 to date it is much higher at 54.58%.
This is nowhere as bad as the COVID years, but compared to FY22 it looks a lot worse. Ideally, the target should be to bring the SIP stoppage ratio below 50% by end of FY23. Now, the current year has been tough due to global headwinds and investors have been jittery. However, the good news is that for a growing economy like India, mutual funds SIP have just scratched the surface. The potential is much bigger!