October 2022 SIP flows scale past psychological Rs13,000 crore

14 Nov 2022 , 01:17 PM

That was always going to happen considering the pace of growth in the last few months. However, what is commendable is that it happened at a time when global headwinds are oppressive and the uncertainty over Fed hawkishness, inflation triggers and recession fears are intimidating. In FY22, SIP flows touched Rs124,566 crore. If you go by early estimates for first 7 months, FY23 promises to be at least 20% bigger in terms of SIP flows. Here is a quick peek at monthly SIP flows for the last 1 year.

Data Source: AMFI

The months of February, April and July 2022 saw modest tapering of SIP flows, but the underlying trend has been strongly positive. Between July 2022 and October 2022, monthly SIP flows bounced from Rs12,140 crore to Rs13,041 crore. If you take a 1 year perspective, the monthly SIP flows are up from Rs10,519 crore to Rs13,041 crore. All this has happened in a year when there were strong global headwinds and rising uncertainty. But first, a quick detour on how it is time rather than timing that matters in case of SIPs.

A quick detour on SIPs: It is about time and not timing

Looking at the way SIP flows have sustained and build through these uncertain times, it does appear rather enigmatic. The key to SIP is that it is about time and not about timing.

a)      What influences the eventual SIP wealth creation the most? You would be surprised to know that it is not the amount of monthly saving or the rate of return on your SIP investments. What matters is how long you sustain your SIP. The longer the better, and if you can sustain even a small and modest SIP for 25-30 years, it can work wonders.

b)      SIPs are actually indifferent to timing of entry and exit. Empirical studies indicates that over a 20-25 year period, even if you miss 3-4 of the best and worst months, then you are going to be better off in a plain vanilla SIP. So, don’t worry about timing your investments, just rely on a passive SIP strategy.

c)      SIP creates wealth through the power of compounding. Over the long term, equity does generate the best returns. However, the longer you stay invested in the SIP, the more your principal earns return and the more your accumulated returns earn further returns. That is how money works harder for you in a SIP. It is all about time in the market.

The SIP flows indicate that SIPs have come of age and the growing Indian middle class and a rising millennial population is making SIPs a big hit among investors.

Sifting through the SIP story for October 2022

FY23 has already completed 7 months, and in addition we have data for previous 6 years in terms of annual SIP flows. If you look at the underlying trend, it has been consistently growing, except for the brief lull in FY21, amidst the pandemic. FY23 data is annualized, but with 7 months gone, you can safely say that the bar is fairly reflective of the likely picture for FY23. The annual trend is fairly well represented by the end of the first quarter itself. 

Data Source: AMFI (FY23 data is annualized)

An interesting data point to evaluate SIP intensity is the average monthly SIP ticket (AMST). This has been on a steady uptrend over last 6 years. Here is the AMST trend since FY17.

Financial Year	Average Monthly 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 (7-month average)	Rs12,468 crore

The message is that, between FY21 and FY23 the SIP tickets have been consistently higher despite global headwinds like inflation, central bank hawkishness, war and recession fears; apart from the lag effect of COVID.

What SIP folios and SIP AUM tell about retail story for October 2022

SIP flows in value terms can be enticing and simple, but it can also be rather misleading as it does not capture retail intensity. That job is done by SIP folios and SIP AUM. Both, SIP folios and SIP AUM can be used as proxies for retail spread, although SIP folios (MF accounts unique to an AMC) are more reliable.

How did the SIP folio growth story pan out in October 2022? The number of SIP folios increased from 583.77 lakhs in September 2022 to 593.30 lakhs in October 2022. That is monthly net accretion of 9.53 lakh SIP folios or 1.63%. The SIP folio growth reflects retail intensity and currently, the SIP folio data for FY23 manifests a lot of retail intensity! What this data indicates is that SIPs are rapidly emerging as a hardcore retail product and the benefits of rupee cost averaging and discipline are appealing to a large mass of investors.

What about SIP AUMs? Between September 2022 and October 2022, the SIP AUM had increased sharply from Rs635,286 crore to Rs664,781 crore. That is monthly accretion of Rs29,495 core in terms of SIP AUM and that is a percentage month-on-month growth of 0.46%. As of October 2022, SIP AUM accounted for more than one-third of overall retail Mutual Fund AUM and it is growing. In any average month, it is the SIP flows driving most of the flows into equity mutual funds and the month of October 2022 was no exception.
 
 
A quick look at the critical SIP stoppage ratio

SIP stoppage ratio is the ratio of SIP accounts discontinued in a specified period to the new SIP accounts opened. Lower this ratio, the better it is as it 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. Ideally, 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. However, in August SIP stoppage fell to 54.23% and further to 48.6% in September 2022. However, in October 2022, the SIP stoppage ratio has risen to 51.70%, largely due to the uncertain macro scenario.

The cumulative SIP stoppage ratio for the first 7 months of FY23, has sequentially tapered from 53.96% to 53.64% over previous month. This may not be as bad as the COVID years, but surely the situation is not as comfortable as it was in FY22. For now the focus should be to ensure that the SIP stoppage ratio comes to well below 50% by the end of FY23.

Where does the trillion dollar SIP opportunity lie? For an economy with $3.4 trillion of GDP and $3.3 trillion of market cap, broad-based SIP collections can go a long way in bridging this gap. As India progresses to becoming a $5 trillion GDP economy over the next 6 years, SIPs can play a sterling role in channelizing savings into long term investments.