SIP flows appear to have gotten into a new plane in the last 3 months. The SIP flows in May-21 at Rs8,819cr was better than Rs8,596cr in Apr-21 and only slightly lower than the record SIP inflow of Rs9,182cr in Mar-21. What is gratifying about May-21 SIP flows is that the total equity fund inflows were well above the SIP inflows, hinting that lump-sum flows are also back in right earnest into equity funds. That is always a good signal. The big question is whether, MF SIP flows can sustain above Rs10,000cr as the new Rubicon?
How SIP flows panned out between FY17 and FY22
Prima facie, the 6 bars in the chart below are not comparable apples to apples; at least not the last bar, which is coloured differently. While the data from FY17 to FY21 is the actual data on annual SIP flows, the FY22 data is annualized 2-month data. However, with each passing month, this last bar will get more meaningful and representative of FY22. Even at the risk of detraction, it gives a good evolutionary idea.
It is quite clear that the direction of SIP flows is up and the trajectory has been sustained in the last 3 years. You can argue that the quantum of flows have not built after FY20, but that is more due to the lag effect of the pandemic. One quick benchmark is the average monthly SIP ticket which is gradually increasing. The average monthly SIP flows were Rs3,660cr in FY17, Rs5,600cr in FY18, Rs7,725cr in FY19, Rs8,340cr in FY20 and Rs.8,007cr in FY21. For FY22, at Rs8,708cr in first 2 months; it is the best in last 5 years.
FY22 SIP flows are relevant for two principal reasons. Despite the pandemic-driven uncertainty of FY21, average monthly SIP flows held above Rs8,000cr. That is a story of retail investor conviction in equities as an asset class. Secondly, FY22 has begun with the promise of an economic recovery, sharply higher base of demat accounts and record SIP folios. All these can add up to help scale new highs in SIP flows.
SIP flows robust; SIP folios even better
The chart below captures the monthly SIP flows since May 2020. There has been a clear phase when the SIP flows were below Rs8,000cr per month but that has been overcome. An intuitive trendline through this gyrating graph indicates an upward trend in SIP collections.
Let us now turn to the all-important SIP folio story. The number of SIP folios increased from 379.54 lakhs in Apr-21 to 388.05 lakhs in May-21: a monthly addition of 8.50 lakh SIP folios or 2.24%. During the same period, the SIP AUM (assets under management) grew emphatically from Rs434,742cr to Rs467,366cr; a growth of 7.5%. The SIP AUM growth in May-21 looks huge, largely due to the 6.5% Nifty rally during the month.
Here is how the share of SIP AUM in overall equity fund AUM changed in May-21? As of Apr-21, SIP AUM was at Rs434,742cr out of an average equity AUM of Rs980,944cr, giving SIP AUM a share of 44.32%. In May-21, SIP AUM stood at Rs467,366cr out of an average equity AUM of Rs10,26,901cr, a SIP AUM share of 45.51%. In the last one month, despite COVID 2.0 concerns, share of SIP AUM in average equity AUM grew 119 basis points. The moral of the story is that SIPs are playing an increasing role in overall equity AUM.
India lags the world in MF AUM / GDP ratio
As we celebrate the growth of SIPs in India, here is a quick look at how India ranks globally in terms of Mutual Fund AUM as a share of GDP. Clearly, India is way behind if you consider other countries with GDP levels of more than $1.5 trillion. India is almost at par with China, but that is not saying much considering that Indian capital markets are a lot more open. Despite crossing AUM of $400 billion, India’s MF AUM as a share of GDP is just about 14%. That is well below the global average AUM/GDP ratio of 63%. The growth potential is huge as mutual funds increasingly become the preferred vehicle for investors.
First Step: Cross the monthly Rubicon of Rs10,000cr SIP inflows
The SIP AUM now stands at 45.51% of the overall equity AUM. In a bullish month like May-21, while the Nifty rally played its part, more than 8.50 lakh folios also got added. We have seen how unfavourably India’s MF AUM as a share of GDP compares with the world. But it is time to look at the optimistic side of the story. The big opportunity of expanding mutual fund AUM must begin with SIPs. The litmus test will be whether SIPs can now sustain above Rs10,000cr per month on a sustained basis. That would be the million dollar question!