How SIP flows panned out in last 5 years?
This is a macro view. The chart considers the annual SIP flows between FY17 and FY21.
The average monthly SIP ticket has been gradually increasing over last 5 years. The average monthly SIP was Rs3,660cr in FY17, Rs5,600cr in FY18, Rs7,725cr in FY19 and 8,340cr in FY20. In the previous month, we had expressed doubts if average SIP flows would touch Rs8,000cr in FY21, but those fears have been belied. Indian mutual funds ended FY21 with average monthly SIP flows of Rs8,007cr.
While average monthly flow into SIPs in FY21 were a tad lower than FY20, we must not forget that FY21 represented the worst lag effect of the pandemic. There were doubts that Mar-21 flows could be hit by the resurgence of COVID but that was hardly the case. The big story of FY21 was that the SIP flows and SIP folios (as we shall see later) staged a smart recovery in the second half of the year. Despite the pressures of the pandemic, Indian investors kept their faith in the gradual approach to investing in mutual funds via SIPs.
Real story of FY21 was the SIP folio recovery in H2
SIP folios and SIP AUMs are two different concepts altogether. SIP folio refers to the account that an investor holds and is unique to each AMC. The SIP AUM is sensitive to stock market rallies. If fresh flows do not come in but Nifty and Sensex rally, AUM can still go up because the value of the portfolio goes up. SIP folios are a different ball game; and also, a more reliable barometer of retail investors interest. It gauges retail investor appetite a lot better.
The chart above plots SIP folios with SIP AUM in FY21 to the base of 100, for easier comparison. The number of SIP folios increased from 311.97 lakhs in Mar-20 to 372.54 lakhs in Mar-21: a growth of 19.42% in last one year. During the same period, the SIP AUM (assets under management) grew from Rs239,886cr to Rs427,916cr; a growth of 78.38%.
SIP AUM looks good on charts but is not representative as it is driven by the market rally. The real story is how the SIP folio growth slowed in the first half of FY21 and then recovered its mojo in the second half. In FY21, 141.30 lakh new SIP accounts were registered. Out of these, 57.13 lakh folios representing 40% of new folios were opened in the first half while 60% of the total folios represented by 84.17 lakh folios were opened in the second half. This sharp recovery in SIPs in the second half was a key factor in the good performance for FY21, despite the macro and micro challenges.
How has the share of SIP AUM in overall AUM changed in FY21? As of Mar-20, the SIP AUM stood at Rs239,886cr out of an average equity AUM of Rs650,147cr, giving SIP AUM a share of 36.90%. As of Mar-21 the SIP AUM stands at Rs427,916cr out of an average equity AUM of Rs982,567cr, giving SIP AUM a share of 43.55%. In short, even in the midst of this bull rally, the share of SIP AUM in overall equity AUM has grown by 665 basis points. The moral of the story is that SIPs are playing a bigger role in the overall equity AUM.
SIP stoppage ratio is now better than pre-COVID levels
SIP stoppage ratio measures the ratio of the number of SIP accounts discontinued in a certain period to the number of fresh SIP accounts opened. Lower this ratio, the better it is.
In the second half of FY21, the SIP stoppage ratio improved from 70.12% in Sep-20 to just 42.43% in Mar-21. That is the good news. While the average SIP stoppage ratio for FY21 is still higher than FY20, the story is about the recovery in the second half of FY21.
Big takeaway is about SIP Power
Behind all this data, there is one message that emerges crystal clear. Notwithstanding the tumult of FY21, retail investors appear to have held their faith in SIPs as an investment vehicle. SIP flows and SIP folios are back to pre-COVID levels. Of course, the bull run in the markets helped a good deal, but that is not to take away from the reality that SIPs did come of age in FY21.