Higher SIP orbit is sustaining in FY22
In the chart below, the data from FY17 to FY21 represents annual data on SIP flows while FY22 data is 5-month data annualized. With nearly half the fiscal year done and dusted, it looks like our estimates for the fiscal may end up being conservative rather than aggressive. What is material is that, with each passing month, the last bar gets more representative of the FY22 trend. In FY22, SIP flows have clearly moved to an entirely new orbit.
One reliable metrics of SIP flows is the average monthly SIP ticket (AMST), which has been steadily on the rise. 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 5 months of FY22, the average monthly SIP flows stand at Rs9,221cr. That is a quantum leap over earlier years. The real test will be whether this trend sustains in the remaining 7 months of FY22? For FY22, there are two targets. The first target is to scale Rs.10,000 crore of monthly median SIP flows. The second target is to achieve AMST of Rs10,000cr and sustain through FY22.
The SIP AUM and SIP flows for the current fiscal year are crucial for a number of reasons. It represents the faith that investors have reposed in Indian mutual funds because those who sustained their SIPs through the pandemic are laughing all the way to the bank.
SIP story in Aug-21 builds on SIP folios and SIP AUM
The trendline of the chart is quite explicit about the upward sloping SIP flows. Last month, we had mentioned about scaling the Rs10,000cr monthly SIP mark decisively and that is almost there. This has to be supported by growth in SIP folios in a more aggressive as well as growth in SIP AUM.
Let us turn to the all-important SIP folio story. The number of SIP folios increased from 417.27 lakhs in Jul-21 to 432.44 lakhs in Aug-21; a monthly net accretion of 15.17 lakh SIP folios or 3.64%. During the same period, the SIP AUM (assets under management) grew from Rs503,597cr to Rs526,883cr; a growth of 4.62%. SIP AUM growth in Aug-21 was driven by growth in folios as well as the 8.7% rally in the indices.
Here is how the share of SIP AUM in overall equity fund AUM changed in Aug-21? As of Jul-21, SIP AUM stood at Rs526,883cr out of an average equity AUM of Rs11,91,770cr, giving SIP AUM a share of 44.21%. If you look at SIP as a share of retail AUM, then nearly one-third of overall retail AUM is accounted by SIPs. That is a significant role that SIPs are playing in building retail AUM.
SIP stoppage ratio spikes in Aug-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 it is as it indicates stickiness among SIP investors. In Aug-21, the SIP stoppage ratio spiked to above 39% from below 36% in last two months. However, this could be attributed to cautious build-up with the markets at all-time highs.
Generally, SIP stoppage ratio of 40% to 50% is considered healthy. In FY20, the SIP stoppage ratio stood at 57.84% but worsened to 60.88% in FY21, due to COVID-19 stress in the first half. However, FY22 has begun with a healthy average SIP stoppage ratio of under 40%. However, the spike in monthly SIP stoppage ratio in Aug-21 needs close observation.
Can 5 crore SIP folios and Rs7 trillion SIP AUM happen in FY22?
That is the million dollar question. Is a target of 5 crore folios and Rs7 trillion SIP AUM feasible in FY22? Let us look at SIP folios first. With current SIP folios at 4.32cr and adding 15 lakhs SIP folios per month, the target of 5cr folios should be achievable by December or January itself. Getting to Rs.7 trillion AUM may be the tougher part.
The mutual fund SIP AUM currently stands at Rs526,883cr. To achieve Rs7 trillion in next 7 months will require average monthly accretion of around Rs25,000cr in SIP AUM. Of course, if the markets fall during that period, then the target becomes a lot tougher. However, if the markets are steady or trending higher and the SIP flows remain buoyant, then Rs7 trillion SIP AUM by Mar-22 is perfectly achievable. That would be icing on the cake for the India SIP story.