Yes, the SIPs are orbiting higher in FY22
In the chart below, the data from FY17 to FY21 represents annual data on SIP flows while FY22 data is 6-month data annualized. With half the fiscal year done and dusted, it looks like original 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 taller and more representative of the FY22 trend. Yes, SIP flows have moved to an entirely new orbit in FY22, after stagnating for the last 3 years.
One reliable barometer of SIP flows is the average monthly SIP ticket (AMST), which has been steadily rising. How has the AMST traversed over the years? 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 6 months of FY22, the average monthly SIP flows stand at Rs9,409cr. That is a quantum leap over earlier years. With Rs10,000cr monthly SIP flows scaled in Sep-21, the next target is to achieve AMST of Rs10,000cr and build on it.
Apart from monthly SIP flows, we also look at two additional parameters; SIP AUM and SIP folios. These represents the faith that investors repose in Indian mutual funds because, had you stuck to SIPs through the pandemic you would have been a lot richer.
In Sep-21, SIPs built on folios and on SIP AUM
The positive slope of the trendline is quite explicit about direction of SIP flows. In Sep-21, the level of Rs10,000 crore was comfortably scaled on the SIP scale. This has to be supported by aggressive growth in SIP folios as well as SIP AUM.
Let us first turn to the SIP folio story. The number of SIP folios increased from 432.44 lakhs in Aug-21 to 448.98 lakhs in Sep-21; monthly net accretion of 16.54 lakh SIP folios or 3.82%. During the same period, the SIP AUM (assets under management) grew from Rs526,883cr to Rs544,976cr; growth of 3.43%. AUM growth was lower than 4.62% recorded in Aug-21 since the Nifty rally was just 2.32% compared to 8.7% in Aug-21.
Here is how the share of SIP AUM in overall equity fund AUM changed in Sep-21? As of Sep-21, SIP AUM stood at Rs544,976cr out of an average equity AUM of Rs12,65,779cr, giving SIP AUM a share of 43.05%. If you look at SIP as a share of retail AUM, nearly one-third of overall retail AUM is accounted by SIPs. In short, SIPs are playing a significant role in building retail AUM.
SIP stoppage ratio edges lower in Sep-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, it is better as it indicates stickiness among SIP investors. They are just staying longer. In Sep-21, the SIP stoppage ratio tapered to 38.28% from 39.13% in Aug-21. However, this stoppage ratio needs to taper still lower to around 35%, which was the median for June and July this year.
Generally, SIP stoppage ratio of 40% to 50% is considered acceptable, so at 39.51% for the first 6 months, the situation is quite comfortable. In FY20, the SIP stoppage ratio stood at 57.84% but worsened to 60.88% in FY21, due to COVID-19 stress. In FY22 median SIP stoppage ratio remained under 40%, with little impact of COVID 2.0.
The 5 crore SIP folios target may be closer than you think
Over the last few months we have been writing about aggressive targets like 5 crore SIP folios and Rs7 trillion of SIP AUM. Let us look at the folios first. With current SIP folios at 4.49cr and adding 16 lakhs SIP folios monthly, the target of 5cr folios should happen by December 2021. The stiffer target will be getting to the big-bang level of 10cr folios but that is something we will address at a later date.
Projecting SIP AUM is more complex as it is a combination of flows into SIPs and also the performance of the indices. The mutual fund SIP AUM currently stands at Rs544,946cr and will have to grow at an average of Rs26,000cr per month to reach Rs7 trillion AUM by Mar-22. That may be a lot tougher. One way to look at this is to target SIP AUM at 50% of equity AUM. That would be more representative of genuine flows than just index accretion!