It may be recollected that in FY22, SIP flows touched a record level of Rs124,566 crore for the full year. If you go by the early estimates for the first 10 months up to September 2022, FY23 SIP flows promise to be closer to Rs153,612 crore or 23.3% higher on a yoy basis. 

The monthly SIP flows have been consistently trending higher over the last one year, with the monthly SIP flow up 20.31% on a yoy basis from Rs11,517 crore to Rs13,856 crore. This has been matched by a concomitant rise in the SIP folios as we shall see later. But first a quick detour into how to make SIPs work best for you.

A quick detour: 5 ways to make SIPs work best for you

It is just not enough to start a systematic investment plan (SIP). You have to put in some basic effort to ensure that the SIPs work best for you. Here is a quick primer.

1. Start the SIP as early as possible. SIPs are based on the power of compounding, which means time matters more than timing. The longer you stay invested, the more likely you are to make money work harder for you. That is when compounding works best.
   
    
2. SIPs must be pegged to financial goals, otherwise the SIP is likely to become an aimless investment. Either you can have multiple SIPs mapped to a single goal or you can have a single SIP that is mapped to multiple goals. Both are good enough.
   
    
3. Ideally, keep your SIPs linked to diversified funds or at best you can go for a multi-cap fund. When you are using SIPs to meet long term goals, it is best to avoid sectoral funds, thematic funds or dividend yield funds as they can be more cyclical in nature.
   
    
4. SIP should have an auto step-up facility. It is not enough to start a SIP and forget about it. The idea is to ensure that the SIP amount also grows simultaneously with your income levels, so that your savings are at an optimum level.
   
    
5. Finally, SIP amount must never be decided by investing the surplus amounts. Instead, the focus should be on setting goals and squeezing savings out of your income. That is when SIPs genuinely build wealth.

FY23 already the biggest year in SIP collections

At Rs128,010 crore, FY23 is already the biggest year in SIP collections with 2 more months to go. If we look at the underlying trend, SIPs have been consistently growing, except for a brief lull in FY21 amidst the pandemic. The figure for FY23 is annualized, but with 10 months gone, you can safely assume that the bar is reflective of the final picture of FY23. In the last 2 years, annual SIP flows are up 59.9% while compared to FY22, the SIP flows are likely to be up by 23.3% on a yoy basis over FY22.

An interesting metrics to evaluate the SIP intensity is the average monthly SIP ticket (AMST). This has been steadily increasing over the last 6 years, as illustrated in the table below.

The big takeaway from the above data is that the recovery post COVID has been really strong and decisive and it has also been unrelenting. Despite headwinds like inflation, central bank hawkishness and the fears of recession; SIP flows have been consistently building up in FY23. That can also be largely attributed to the surge in millennial participation in these systematic investment plans.

SIP folio, SIP AUM and the retail story for December 2022

SIP flows in value terms can be enticing and simple, but it can often by misleading too. Here is the reason for that. SIP flows do not capture the retail intensity as they are averages. That job is done quite effectively by SIP folios and SIP AUM. Both, SIP folios and SIP AUM can be used as proxies for assessing retail spread, although SIP folios (MF accounts unique to an AMC) can be considered to be more reliable as it is pure volume numbers.

How did the SIP folio growth story pan out in January 2023? The number of SIP folios increased from 612.43 lakhs in December 2022 to 621.63 lakhs in January 2023. That is monthly net accretion of 9.20 lakh SIP folios or 1.5%. The folio growth reflects retail intensity and currently, SIP folio data for FY23 is showing a lot of retail intensity!

What about SIP AUMs? If you look at FY23, between April 2022 and January 2023, the SIP AUM has increased sharply from Rs578,086 crore to Rs673,775 crore; a growth of 16.55%. However, despite smart folio numbers, the SIP AUM (assets under management) has been consistently falling from the peaks of November 2022. This can be attributed to the sharp fall in equity indices in December 2022 and in January 2023 amidst heavy FPI selling in Indian equities. FPIs had sold nearly $3.54 billion in Indian equities in January 2023.

SIP stoppage ratio remains elevated in January 2023

SIP stoppage ratio is the ratio of SIP accounts discontinued in a specified period to the new SIP accounts opened. It shows the stickiness or the lack of it among investors in mutual fund SIPs. Lower this ratio, the better it is since it is indicative of the higher retention of SIP investors. For FY20, the SIP stoppage ratio for the full year was 57.84% while for FY21 it was 60.88%. 

There was a reason for the same. The high SIP stoppage ratios in FY20 and FY21 can be attributed to the COVID based uncertainty and withdrawals for cash flow emergencies. Later in FY22 the SIP stoppage ratio fell to 41.74%. Ideally, SIP stoppage ratio in the range of 40% to 45% is considered to be tolerable and also acceptable. In FY23 SIP stoppage ratio for the month of January 2023 tapered to 59.38% compared to 66.22% in December 2022.

Let is also look at the cumulative SIP stoppage ratio for the first 10 months of FY23, it stands higher at 55.10%. That is fairly high considering the last year data, but the uncertainty and headwinds are much higher in the current year. So, some amount of caution is a good idea at this juncture. The immediate priority should be to bring down the SIP stoppage ratio to fall well below 50% by the end of March 2023.

However, the real story of SIPs may have just about begun in India. For an economy with $3.2 trillion of GDP and moving towards $5 trillion in next 7 years, these SIP collections are just the tip of the iceberg. The potential is certainly huge and that will eventually reflect in the SIP flows.