October 2021 does an encore of SIP flows above Rs10,000cr

The trend indicates that overall SIP flows for FY22 will be bigger than FY20 and well above the median SIP flows of last 5 years.

Nov 12, 2021 10:11 IST India Infoline News Service

If mutual funds SIPs breached the Rs10,000cr Rubicon in Sep-21, the month of Oct-21 saw consolidation of that trend. In Oct-21, the monthly SIP flows stayed well above the mark at Rs10,519cr; predominantly retail and predominantly equity linked flows. The SIP momentum had been building for some time now with net SIP flows of Rs8,819cr in May-21, Rs9,156cr in Jun-21, Rs9,609cr in Jul-21 and Rs9,923cr in Aug-21.  In Sep-21 SIP flows touched Rs10,351cr and in Oct-21 it is at Rs10,519cr. Here is the SIP story.

SIP tower for FY22 is gradually getting taller

In the chart below, data from FY17 to FY21 represents actual yearly SIP  flows while FY22 data is 7-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 trend 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 (FY21-22 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 7 months of FY22, the average monthly SIP ticket stand at Rs9,568cr. That is a quantum leap over earlier years and has been adding heft each month. With Rs10,000cr monthly SIP flows scaled, the next target is sustained AMST of Rs10,000cr.

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 actually manifest the faith that investors repose in Indian mutual funds. One of the important SIP lessons that most Indian investors learnt during the pandemic was that; had they just passively stuck to their SIP discipline, they would have ended up richer and wiser.

SIP folios and SIP AUM gathered momentum in Oct-21

The positive slope of the SIP trendline over the last 12 months shows how the idea of SIPs gained ground in India. The month of Oct-21 marked the second consecutive month then the Rs10,000 crore SIP mark was comfortably scaled. However, for the SIP flows to sustain in the coming months, it has to be also supported by aggressive growth in SIP folios and SIP AUM. While folios are AMC level accounts of investors, SIP AUM is determined by a combination of SIP flows and accretion in stock market prices.

Data Source: AMFI

Let us first turn to the SIP folio story. The number of SIP folios increased from 448.98 lakhs in Sep-21 to 464.31 lakhs in Oct-21; monthly net accretion of 15.33 lakh SIP folios or 3.41%. During the same period, the SIP AUM (assets under management) grew from Rs544,976cr to Rs553,532cr; growth of 1.57%. AUM growth was lower than last two months due to a flat Nifty. However, the market volatility also dampened SIP folio accretion in Oct-21.

How has the share of SIP AUM in overall equity fund AUM panned out? As of Oct-21, SIP AUM stood at Rs553,532cr out of an average equity AUM of Rs13,12,982cr, giving SIP AUM a share of 42.16%. Nearly one-third of overall retail AUM (as defined by AMFI) is accounted for by SIPs. In short, SIPs are playing a significant role in building retail AUM.

Good news is that SIP stoppage ratio edged lower in Oct-21

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, the better as it indicates stickiness among SIP investors. In Oct-21, the SIP stoppage ratio moderated sequentially from 38.28% to 35.67%, getting back to the median range of June and July this year.

Data Source: AMFI (# - represents 7-month average)

Generally, SIP stoppage ratio of 40% to 45% is considered acceptable, so at 38.9% in the first 7 months, it 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 remained under 40%, and tapering.

How soon can MFs get to 5 crore folios and Rs7 trillion AUM?

In Oct-21, there was a general tepidness in SIP folios and AUM accretion. In a way they are related to each other. How soon can the 5 crore folios target be reached? With current SIP folios at 4.64cr and adding 15-16 lakhs SIP folios monthly, the target of 5cr folios should happen by Dec-21 or Jan-22. At the current SIP run of over Rs10,000cr per month, even if the Nifty is rangebound, the Rs.7 trillion AUM mark would take more than a year. Of course, if the stock  markets do rally, that would be icing on the cake.

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