September 2022 SIP flows scales to all-time record high

The SIP flow data for September 2022 released by AMFI was not just stable compared to previous months, but also indicated record flows.

October 12, 2022 5:42 IST | India Infoline News Service
It may be recollected that in FY22, SIP flows touched record level of Rs124,566 crore. If you go by the early estimates for the first 6 months up to September 2022, FY23 promises to be much 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 September 2022, monthly SIP flows bounced from Rs12,140 crore to Rs12,976 crore. This was amidst strong global headwinds and rising uncertainty. But first, a quick detour on what makes SIPs click?

A quick detour: What exactly makes SIPs click?

Looking at the way SIP flows have sustained and build heft through these uncertain times, it does appear rather enigmatic. Here is what makes SIP as an idea click.
  1. For most investors, not fully tuned into the nuances of the stock markets, SIP is almost like a passive investment. As far as they are concerned, they make the allocation and let time do the job of building wealth.
  2. SIP makes a lot of economic sense. Most people prefer to invest in SIPs each month synchronised with their income flows. This becomes a part of their discipline and also makes savings and investment a regular habit.
  3. SIP is not about amounts or the rate of return but about time. The longer you sustain your SIP, the more it works for you. Today, thanks to calculators, simulation of future wealth via SIPs has become a lot simpler for investors.
  4. In an economy that is driven by consumerism, most people find it difficult to underplay spending and overplay saving. SIP offers the best solution as it forces people to save and then spend the residual amount only.
Clearly, SIPs have come of age and the growing Indian middle class and a rising millennial population is making SIPs, as a product, a big hit among the investors.

Reading through the SIP story of September 2022

FY23 has already completed 6 months, and in addition we have data for 6 years in terms of annual SIP flows. If you look at the underlying secular trend, it has been consistently growing, except for the brief lull in FY21, amidst the pandemic. The figure for FY23 is annualized, but with six months gone, you can safely say that the bar is fairly reflective of the emerging picture for FY23. In the last few years, the observation was that the annual trend is fairly well represented by the end of the first quarter of the fiscal year.

Data Source: AMFI (FY23 data is annualized)

An interesting metrics to evaluate the SIP intensity is the average monthly SIP ticket (AMST). This has been on a steady uptrend over last 6 years. The table below captures 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 Rs12,372 crore

The big takeaway from the above data is that the recovery post COVID has been really strong and decisive. In the last 1 year, the SIP tickets have been consistently higher despite the global headwinds like inflation, central bank hawkishness, war and recession fears.

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

SIP flows in value terms can be enticing and simple, but it can also be misleading. SIP flows do not capture the retail intensity. That is captured 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) are more reliable.

How did the SIP folio growth story pan out in September 2022? The number of SIP folios increased from 571.61 lakhs in August 2022 to 583.77 lakhs in September 2022. That is monthly net accretion of 12.16 lakh SIP folios or 2.13%. In fact, the good news is that the SIP accretion has gone up sharply in the last 2 months, reversing the trend between April and June 2022. The folio growth reflects retail intensity and currently, the SIP folio data for FY23 is showing a lot of retail intensity!

What about SIP AUMs? Between June 2022 and August 2022, the SIP AUM had increased sharply from Rs551,189 crore to Rs639,787 crore. However, despite the robust folio numbers, the SIP AUM (assets under management) fell from Rs639,787 crore in August 2022 to Rs635,286 crore in September 2022. This fall can be almost entirely attributed to the sharp fall in equity indices, in the second half of September 2022, after the Fed turned ultra-hawkish and the Foreign Portfolio Investors (FPIs) turned net sellers. As of September 2022, SIP AUM accounted for more than one-third of overall retail Mutual Fund AUM. In any average month, it is the SIP flows driving most of the flows into equity mutual funds.
Good news is that SIP stoppage ratio has come down

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%.

The high SIP stoppage ratios in FY20 and FY21 can be attributed to the COVID induced uncertainty and cash flow emergencies. That was obvious because in FY22 the SIP stoppage ratio fell to 41.74%. 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, if you look at the cumulative SIP stoppage ratio for the first 6 months of FY23, it stands at 53.96%. This may not be as bad as the COVID years, but surely a lot worse than FY22. For now the focus should be to ensure that the SIP stoppage ratio comes to well below 50% by the end of FY23, which should be a comfortable scenario.

SIPs are growing and they are growing at a rapid pace. But India may have just scratched the surface. For an economy with $3.2 trillion of GDP, these SIP collections are nowhere close to full potential. Probably, the combination of the digital spread and inclusion of smaller towns in the investment mainstream should make the big difference to the future.

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