SIP flows bounce to Rs12,286 crore in May 2022

12 Jun 2022 , 10:47 PM

In FY22, SIP flows overall had touched record levels of Rs124,566 crore and FY23 promises to be still better, at least going by the trend of the first 2 months of FY23. In April 2022, there was a modest tapering of SIP flows at Rs11,863 crore but has bounced back to Rs12,286 crore in the month of May 2022. Before getting into the maze of SIP numbers, let us first look at why SIPs matter so much.

Why SIPs are material to mutual fund flows?

In the last few years, systematic investment plans (SIPs) have emerged as the default mode for retail investors to onboard into mutual funds. This is why SIPs matter.

1. SIPs provide the advantage of rupee cost averaging. Since SIPs are phased over time, they tend to offer more value in bullish periods and more unit allocations in bearish periods. Overall, this helps reduce the cost of holdings over time.
2. SIPs sync with income flows. Most people have periodic income flows so SIPs can be synchronized with such flows (e.g. monthly SIPs). This not only inculcates saving discipline but also does not put strain on your finances.
3. Finally, SIPs are fantastic financial planning tools. All that investors need to do is to invest in the right asset class SIP and peg it to a long term goal like retirement, education of children, buying a second home, building a nest egg. It is an automated process.

Since SIPs offer these unique advantages, let us now turn to the numbers.

Estimating annualized SIP flows for FY23

FY23 may have just begun but we now have data for 6 years in terms of monthly and annual SIP flows. Barring an aberration in FY21, on account of COVID, the trend has been that SIP flows are steadily growing on the positive side. Remember, FY23 data is annualized, so not strictly comparable. However, with each passing month, the FY23 data becomes more reflective of the SIP flow trend. What we learnt in FY22 was that these trends are fairly reliable and tend to reflect the likely picture at the end of the fiscal year.

Data Source: AMFI (FY23 data is annualized)

If absolute numbers are misleading here is a more focused metrics; the average monthly SIP ticket (AMST). This has risen steadily over last 6 years. AMST was Rs3,660 crore in FY17, Rs5,600 crore in FY18, Rs7,725 crore in FY19, Rs8,340 crore in FY20, Rs8,007 crore in FY21 and Rs10,381 crore in FY22. For FY23, the AMST at end of May stands at Rs12,075 crore.

What do we glean from the above data. Remember, these inflows into SIPs have stayed robust despite headwinds like China lockdowns, Ukraine war, rising inflation, supply chain constraints and hawkish central banks. Firstly, investors are increasingly looking at SIPs as a financial planning tool rather than a random investment. Secondly, investors learnt during the pandemic that only persistence pays in SIPs. That has made the big difference to SIP flows and that is what the SIP flow data manifests.

Here is the SIP folio and SIP AUM story for May 2022

SIP flows can be an enticing piece of statistics but it can also be partially misleading. It does not tell you a lot about the spread of the SIP flows. That is captured by the SIP folio data. For mutual funds, the SIP folios and SIP AUM can be used as proxies for assessing the retail spread. Folios are MF accounts unique to one particular AMC and are a good approximation.

How did SIP folios grow in May 2022? The number of SIP folios increased from 539.02 lakhs in April 2022 to 548.41 lakhs in May 2022; a monthly net accretion of 9.39 lakh SIP folios or 1.74%. One can argue that there are challenges like multiple folios in the name of the same investor and non-equity SIP folios. However, even if you factor those points in, the SIP folio data gives a very reliable approximation of the direction of retail appetite for equity mutual funds. It may not be precise, but it is a fair median picture.

Let us also look at the SIP AUM story. The SIP AUM (assets under management) increased from Rs578,086 crore in April 2022 to Rs565,706 crore in May 2022. This fall of  -2.14% in SIP AUM in May 2022 is largely on account of the sharp fall in the equity indices. However, there is an important point to note here. For May 2022, the growth in SIP AUM was negative but the SIP folios have seen solid accretion, which shows robust retail appetite for equity funds. It indicates that SIP ownership is becoming more widespread in India. As of May 2022, SIP AUM still account for one-third of overall retail Mutual Fund AUM.

SIP stoppage edges sharply higher in May 2022

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 and also greater stickiness. Some of the trends are interesting. For FY20, the SIP stoppage ratio was 57.84% on an average while for FY21 it was 60.88%.

Such high levels of SIP stoppage ratio were due to the uncertainties created by COVID. In FY22, the stoppage ratio normalized to a more acceptable 41.74%. However, in the first 2 months of FY23, the stoppage ratio stands at 50.24% with May 2022 stoppage ratio spiking to 52.43%.

Is there a benchmark for the SIP stoppage ratio. Normally, annualized SIP stoppage ratio of 40% to 45% is considered to be acceptable. Due to the heightened uncertainty in FY23, the SIP stoppage ratio is well above the acceptable average. Hopefully, that should be rectified once the macros get back to normal. However, there is still room to be positive about.

The early signals on the SIP front in May 2022 are that investors have persisted with SIPs and most retail investors still look at SIPs as an onboarding strategy. Most of the mutual fund distributors have made SIP selling part of their core strategy, especially in Tier-2 and Tier-3 towns. The real challenge now would be to stabilize monthly SIP flows at Rs20,000 crore, but that would still take some time to materialize.