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9 mins read . 27 Dec 2022
In October 2022, the monthly SIP flows had crossed Rs13,000 crore for the first time. In November 2022, it has set a new record of Rs13,306 crore in terms of net SIP flows. This is as per the latest data released by AMFI. Beyond the numbers, what is commendable is that these records have happened at a time when global headwinds are far from favourable. The fear of global recession is still there, inflation has only started to taper and global demand has come under immense strain due to consumer unwillingness to spend. Here is a quick look at the monthly net SIP flows over the last 1 year.
Data Source: AMFI
The months of February, April and July 2022 had seen modest tapering of SIP flows, but the underlying trend has been positive. Between July 2022 and November 2022, monthly SIP flows bounced from Rs12,140 crore to Rs13,306 crore. On a yoy basis, the monthly SIP flows are up from Rs11,005 crore to Rs13,306 crore. All this has happened in a year when there were strong global headwinds and rising uncertainty. But first, a quick detour on how SIPs show you the essential difference between the necessity of savings and the power of investing your money in equity.
When you have a surplus, you first create an emergency saving in liquid assets. After that is done, you have to invest for long-term goals. SIPs best underline this difference.
As of November, FY23 has completed 8 months and to top it, you have data for another six years available. Except the pandemic year of FY20-21, the SIP volumes have grown consistently. In fact, as you can see in the chart below, between FY21 and FY23, the growth has been really frenetic, showing that SIPs have finally come of age in India.
Data Source: AMFI (FY23 data is annualized)
How does the SIP ticket size for FY23 compare with previous years? You can use the measure called average monthly SIP ticket (AMST). Here is the AMST trend 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 |
The message is that, between FY21 and FY23 the SIP tickets have been consistently higher despite global headwinds like inflation, central bank hawkishness, recession concerns and the sticky geopolitical situation in China and Russia.
One way to judge the retail spread of SIP is through SIP folios and SIP AUM. Now, SIP folios are MF accounts unique to an AMC are more reliable. How did the SIP folio growth story pan out in November 2022? The number of SIP folios increased from 593.30 lakhs in October 2022 to 604.57 lakhs in November 2022. This is the first time that total SIP folios have crossed the 6 crore mark. That is monthly net accretion of 11.27 lakh SIP folios or 1.90%. The SIP folio data for FY23 manifests a lot of retail intensity!
What about SIP AUMs? Between October 2022 and November 2022, the SIP AUM had increased sharply from Rs664,781 crore to Rs683,852 crore. That is monthly accretion of Rs19,071 core in terms of SIP AUM and that is a percentage month-on-month growth of 0.29%. As of November 2022, SIP AUM accounted for more than a third of overall retail Mutual Fund AUM and it is growing. In a nutshell, in any average month, it is the SIP flows that are driving most of the flows into equity mutual funds and the month of November 2022 has only helped to perpetuate this trend.
This is one interest measure about the stickiness of SIP investors to check if there is fatigue among SIP investors. The SIP stoppage ratio is the ratio of SIP accounts discontinued in a specified period to new SIP accounts opened. Lower this ratio, the better it is and the reason is obvious. A low ratio of SIP stoppage indicates higher retention of SIP investors. After all, you don’t want your SIP investors exiting and going away. For FY20, the SIP stoppage ratio for the full year was 57.84% while for FY21 it was 60.88%. However, these were exceptionally stressful years wherein, apart from panic exits, there was also the financial stress forcing people to redeem SIPs.
The reasoning that COVID had resulted in a spike in the SIP stoppage ratio was ratified when the FY22 SIP stoppage ratio fell sharply to 41.74% levels; a rather benign scenario. While there are no hard and fast rules, it is estimated that a SIP stoppage ratio of 40% to 45% is acceptable. In FY23 SIP stoppage ratio had touched 63.86% in June 2022 and 59.53% in July 2022. In August 2022, the SIP stoppage tapered to 54.23% and further to 48.6% in September 2022. However, October 2022 has again seen SIP stoppage ratio bouncing back to 51.70% due to a highly uncertain macro scenario.
What about FY23? The cumulative SIP stoppage ratio for the first 7 months of FY23, has sequentially tapered from 53.64% to 52.92%; a consistent fall over 2 months. SIP stoppage is not as high as COVID ratio, but the situation would be more comfortable if it the FY23 SIP stoppage ratio is under 50% to begin with.
For now, the big opportunity in SIP arises from a growing middle class in India and a rising millennial population. The macro story of India moving to a $5 trillion economy helps.