SIP flows robust in July but sip closures also rise

SIP flows set a record in July 2023

Sip flows or systematic investment plan flows of mutual funds have long been a barometer of sustainable retail participation in mutual funds. Over the last one year, the sip flows on a monthly basis had hovered above the rs14,000 crore on an average. However, july 2023 marked the first time in history when the sip flows crossed the 15,000 crore mark. At rs15,245 crore of gross sip flows in july 2023, it was a record of sorts. Sips are turning to be very sticky since investors are sticking to sips through thick and thin. The growth in sip flows is quite stunning over the last few years. For the full year fy23, the sip flows were 25.2% higher than fy22 and 62.3% higher than fy21. Now, even fy24 has started off with a bang. If we annualize the 4-month flows into sips in fy24, then the sip flows are 12.44% higher than fy23, 40.78% more than fy22 and a full 82.52% higher than fy21. Sips help investors to use time in the market rather than rely on timing the market, which is mostly impractical.

SIP lessons learnt from the pandemic

There are many lessons that people learnt during the peak pandemic period of 2020 and 2021. However, the one thing that really stood out was the way people who stuck on to their sips ended up making huge profits. In fact, the year 2020 and 2021 was when many small investors relied on the accumulated wealth in sips to take care of their expenses. For most investors, it was like a hobson’s choice. However, the few investors who held on to their sips ended up laughing all the way to the bank. Not only did the markets bounce back to new highs, but the pandemic period also ensured that sips accumulated units at fairly low prices. If you look at the sip flows, there has been a perceptible surge after the pandemic, which is indication of the fact that investors have taken the right lessons on sips from the pandemic. The moral of the story is; time in the market matters more than timing the market. That is something, highly impractical, anyways.

Average monthly SIP ticket, a much better measure

Most of us prefer to look at the sip flows on a monthly basis as it gives a trend. That number has surely been impressive. For instance, after scaling record level of gross sip flows at rs14,749 crore in may 2023, the june 2023 sip flows were marginally lower at rs14,734 crore. In contrast, july 2023 saw a new high of gross sip flows at an unprecedented level of rs15,245 crore. But, these high frequency numbers do not convey much. A better option is to look at the average monthly sip ticket (amst) for a longer term perspective.

Data source: amfi (# - 4 month data annualized)

To understand what we are saying about the post pandemic flows, look at how the gross annual sip flows have growth between fy21 and fy24 (although annualized data). At rs155,972 crore, fy23 was the biggest year in sip collections so far. However, if you go by the early trends pertaining to the first 4 months of fy24, then the current fiscal promises to be even better. If these numbers are extrapolated, we are looking at full-year sip collections of around rs175,368 crore for fy24. Going by that extrapolation, fy24 could be 12-13% better than fy23, in terms of sip flows.

The average monthly sip ticket (amst) measures the average sip flows on a monthly basis. It was only in fy22 that the amst crossed rs10,000 crore a month. In the next 2 years, the amst is up nearly 50%, hinting at the kind of intensity in sip flows, despite volatile market conditions.

Better look at sip folios and SIP AUM

While sip flows are a good feel-good factor, it is the growth in sip folios that actually tell us about retail intensity. For the month of july 2023, sip folios increased from 665.37 lakhs in june 2023 to 680.53 lakhs folios. That shows absolute accretion of 15.16 lakh sip folios or 2.28% in percentage terms. What about the sip aum? One problem in using sip aum is that the it is largely influenced by rallies and falls in the market index. Let us look at the numbers. Between june 2023 and july 2023, sip aum increased by 4.87% to rs832,275 crore. Sip aums have been growing at around 5% on an average each month, with nearly half the thrust coming from sip folio accretion and the other half coming from index appreciation. 

The challenge: how to address SIP stoppage

The table below captures the sip stoppage ratio on a yearly and monthly basis.

Data source: amfi (* - based on 4-months data)

Sip stoppage ratio for july 2023 at 54.14% is lower than june 2023 at 54.93% and may 2023 at 57.45%. The progressively lower sip stoppage ratio is indicative of investors getting stickier about sip folios. Sip stoppage ratio spiked in fy20 and fy21 due to covid uncertainty and withdrawals for cash flow emergencies. However, after tapering in fy22, the sip stoppage ratio has once again bounced to above 55% levels in fy23 and fy24.

There is nothing like the ideal range of sip stoppage ratio, but the preferred range is between 40% to 45%. Cumulative sip stoppage for fy24 has progressively come down, but in absolute terms, it is still fairly high at 57.62%. One reason could be the elevated levels of the nifty and the sensex. Obviously, the key challenge would be to contain the sip stoppage ratio as it can offset a lot of sip inflows. That effort still appears to be missing.

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