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Nov-21 SIP flows cross Rs11,000cr for first time ever

Mutual funds SIP flows breached the Rs10,000cr Rubicon in Sep-21 and has held on since. In Oct-21 the monthly SIP flows grew to Rs10,519cr; predominantly retail and predominantly equity linked flows.

December 10, 2021 11:59 IST | India Infoline News Service
Mutual funds SIP flows breached the Rs10,000cr Rubicon in Sep-21 and has held on since. In Oct-21 the monthly SIP flows grew to Rs10,519cr; predominantly retail and predominantly equity linked flows. However, Nov-21 has seen monthly SIP flows set a new record at Rs11,005cr. The SIP momentum had been building gradually from May-21 and has not looked back. Here is the SIP story for November 2021.

It looks like SIP flows in FY22 will be another record

In the chart below, data from FY17 to FY21 represents actual yearly SIP  flows while FY22 data is 8-month data annualized. It now looks like the original estimates for FY22 may end up being conservative rather than aggressive. With each passing month, the last SIP Tower gets taller and more representative of FY22 trend. The chart indicates that overall SIP flows for FY22 will be bigger than FY20 and well above the median SIP flows of last 5 years.

Data Source: AMFI (FY22 data is annualized)

One reliable measure of the quality of SIP flows is the average monthly SIP ticket (AMST). This metrics has been steadily rising over last 5 years. For example, the AMST was Rs3,660cr in FY17, Rs5,600cr in FY18, Rs7,725cr in FY19, Rs8,340cr in FY20 and Rs.8,007cr in FY21. After 8 months of FY22, the average monthly SIP ticket stand at Rs9,747cr. That is a quantum leap over earlier years and has been adding heft each month. With Rs11,000cr monthly SIP flows scaled, the next target is attain AMST of Rs10,000cr before end of FY22.

Monthly SIP flows, while being representative, are still a very macro picture. Hence we also look at two additional parameters; SIP AUM and SIP folios. These give a more micro picture. For example, the entry of young investors and millennials has added more folios. These actually manifest the faith investors repose in Indian mutual funds. One of the important SIP lessons for Indian investors during the pandemic was that; had they just stuck on to their SIP discipline, they would have ended up laughing all the way to the bank.

SIP folios and SIP AUM gathered momentum in Nov-21

The slope of the SIP trendline in the chart below is self-explanatory. Clearly, over the last 12 months the idea of SIPs gained ground in India. The month of Nov-21 marked the third consecutive month that the Rs10,000 crore SIP mark was comfortably scaled. However, that is not sufficient. For the SIP flows to sustain in the coming months, it has to be supported by aggressive growth in SIP folios and SIP AUM. While folios are AMC level accounts of investors, SIP AUM represents a combination of SIP flows and market cap accretion.

Data Source: AMFI

Let us first turn to the SIP folio story. The number of SIP folios increased from 464.31 lakhs in Oct-21 to 478.24 lakhs in Oct-21; a monthly net accretion of 13.93 lakh SIP folios or 3.00%. During the same period, the SIP AUM (assets under management) compressed from Rs553,532cr to Rs546,683cr; fall of -1.24%. While SIP flows were still robust, the sharp Nifty correction ensured that SIP AUM ended weaker.

How has the share of SIP AUM in overall equity fund AUM panned out? As of Oct-21, SIP AUM stood at Rs546,683cr out of an average equity AUM of Rs13,20,703cr, a share of 41.39%. Nearly one-third of overall retail AUM (as defined by AMFI) is accounted for by SIPs.
SIP stoppage ratio edged higher, but that could be due to caution

SIP stoppage ratio represents the ratio of number of SIP accounts discontinued in a certain period to the number of SIP accounts opened. Lower this ratio, it indicates greater level of stickiness among SIP investors. In Nov-21, the SIP stoppage ratio spiked sequentially from 35.67% to 39.91%. This could be largely due to the high degree of uncertainty in the markets and fears over RBI hawkishness amidst valuation concerns.
Data Source: AMFI (# - represents 7-month average)

Generally, SIP stoppage ratio of 40% to 45% is acceptable, so 39.04% in the first 8 months is comfortable by a mile. In FY20, the SIP stoppage ratio stood at 57.84% but spiked to 60.88% in FY21, due to COVID-19 stress. In FY22 median SIP stoppage ratio remains under 40%.

Just a stone’s throw from 5cr SIP folios

In Nov-21, there was a general tepidness in SIP folios and SIP AUM due to the uncertainty in the markets and the global economy. For now it looks like the 5 crore folios target is just a stone’s throw away? With current SIP folios at 4.78cr and adding 14-15 lakhs SIP folios monthly, the target of 5cr folios should happen by Jan-22.

There is a major challenge here. Many of the SIP investors are likely to be first-time investors with little exposure to market downcycles. It is not clear how they will react to violent market disruptions or to sustained tepidness in the market. The latter is a lot tougher and could put the SIP story to a real acid test.

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