8 mins read . 16 May 2023
Systematic investment plans (SIPs) have emerged as one of the most efficient and effective methods for investors to participate in mutual funds in a systematic manner. The numbers bear eloquent testimony. In the just concluded FY23 fiscal, SIP collections stood at Rs1.56 trillion with the March SIP flows crossing Rs14,000 crore for the first time ever. In April 2023, the SIP flows were Rs13,728 crore; slightly lower than in March but still robust. The FY23 SIP flows were already 25.2% higher than FY22 and 62.3% higher than FY21. Investors are gradually realizing that it is time in the market and not timing the market that really matters. That is best captured by SIPs, especially on equity funds
SIP collections on a monthly basis give a very short term picture of SIP flows. A better perspective would be to look at the SIP flows for the last few years and the average monthly SIP flows. Here we look at the SIP flow data for the last 7 financial years.
|Gross Annual SIP |
flows (Rs crore)
|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
In the above table you can see that between FY17 and FY23, the average SIP flows have grown from Rs3,660 per month to Rs12,998 per month, a growth that is nearly four-fold. Despite an intermediate slowdown in SIP flows in the COVID period, the SIP flows bounced back quite sharply post-COVID to touch new highs. It is clearly a case of the retail investors, especially the millennial young investors, opting for the SIP route. However, there is a problem. The numbers that you see are gross SIP flows and not SIP flows and there is a lot more insights available if you look at the net SIP flows. Here is how.
There is a slight discrepancy in the way mutual fund data is reported by AMFI. For instance, the equity and debt fund flows are reported monthly on a net basis while the SIP flows are reported on a gross basis. Hence, comparing gross SIPs with net equity flows can give a misleading picture. Here we look at how the net SIP figures look.
Why is this gap between gross SIP flows and net SIP flows and what are the reasons for this varying ratio. For that, we need to understand the SIP stoppage ratio.
An oft-ignored piece of data in mutual fund flows is the stoppage ratio and that is a rather important ratio as it shows the stickiness of SIPs. Obviously, the longer SIPs stay the better it is as the easiest customer to acquire in any business is the existing customer. Now let us turn to the SIP stoppage ratio. It is the ratio of the number of SIP accounts discontinued to the new SIP accounts opened in a particular period of time. It can be in a year or in a month. The SIP stoppage ratio is the barometer of stickiness of SIP investors and is indicative of the level of the market and the level of uncertainty in the market. Lower the SIP stoppage ratio, the better it is as it shows that fewer SIPs are being discontinued or are failing to renew. The table captures the SIP stoppage ratio over the last 5 fiscal years.
|FY 2019-20||FY 2020-21||FY 2021-22||FY 2022-23||FY 2023-24*|
Data Source: AMFI
The last shaded column for FY2023-24, is only for a month and not comparable with previous years. But this ratio will cumulatively give a correct picture as the year progresses. The spike in SIP stoppage ratio during FY20 and FY21 was understandable. It was triggered by COVID uncertainty and withdrawals for emergencies. However, you can also see a sharp fall in FY22, which presented a more stable macro scenario. That led to the SIP stoppage ratio dropping to 41.74%. However, the concern is that SIP stoppage ratio has bounced back to 56.94% in FY23. Ideally, this ratio should be in the range of 40% to 45% and the FY23 figure is much above that. In April 2024, this SIP stoppage ratio has further spiked to 67.54%; which is tad too high for comfort.
The real story of Indian SIPs may not be about the stoppage ratio but about the immense potential. Here is a $3.5 trillion economy, poised to become $5 trillion in 5 years. If you take the number of SIP folios at 6.5 crore and compare that to the number of life policies, number of bank accounts or mobile connections; SIPs have hardly penetrated. That is also the untapped opportunity in mutual fund SIPs.
Content Source: AMFI India Website