Strong SIP flows - The big story of 2019!

The year 2019 continued to see steady monthly flows into SIPs as well as aggressive growth in the number of new SIP accounts and the SIP AUM. Here is what the SIP story for 2019 is all about.

Dec 31, 2019 01:12 IST India Infoline News Service

As we look back at the capital markets in 2019, a lot of things were extremely volatile. The Sensex gyrated wildly during the year before ending in positive territory. The FPI flows into equities wandered from optimism in March to extreme pessimism in July before getting back to optimism in October. Money flows into risky debt funds continued to be negative even as lump sum flows into equity funds tapered. However, the one thing that held high in 2019 was the flow into SIPs or systematic investment plans. The year continued to see steady monthly flows into SIPs as well as aggressive growth in the number of new SIP accounts and the SIP AUM. Here is what the SIP story for 2019 is all about.
 
SIP flows were steady on a monthly basis
SIP flows through the year have been in excess of Rs8,000cr per month. There have been concerns expressed that a large number of SIPs were discontinued during the year due to volatility in the markets. However, if you look at the monthly data on SIP folio additions and SIPs discontinued, the net accretion continues to be positive.
Month New SIPs registered
(in lakhs)
SIPs Discontinued
(in lakhs)
Net SIP accretion
(in lakhs)
April 2019 9.02 5.40 3.62
May 2019 9.65 5.86 3.79
June 2019 9.29 5.40 3.89
July 2019 10.19 5.63 4.86
August 2019 8.80 5.83 2.97
September 2019 8.50 5.63 2.87
October 2019 10.03 5.30 4.73
November 2019 10.89 5.55 4.34
Cumulative (till Nov) 76.37 44.60 31.77
Data Source: AMFI

As can be seen from the data on SIP registrations and discontinuance, the concerns appear to be largely unwarranted. In a way, the trend in SIP accretions appear to be in tune with the market sentiments and FII flows. The net accretion was at the lowest in the months of August and September but from October onwards there has been a sharp recovery.

How the SIP AUM grew during the year?
As of December 2019, the SIP AUM as a percentage of the overall mutual fund AUM stood at a healthy 11.6%. Of course, the SIPs are predominantly retail money in equity funds and ELSS schemes so the granular ratio may be higher. But, we can leave that aside for the time being. Here is how the cumulative SIP folios and the SIP AUM have grown in the fiscal year.
Data source: AMFI

It is clear that notwithstanding the market volatility during the year, the SIP folios and the SIP AUM stock has steadily grown during the year. What explains this steady growth in SIP during the year and why have SIPs been the big story of 2019?

Why SIPs have been the big MF story of 2019?
It is hard to pin point specific reasons why SIPs have continued to grow even in a volatile year but 5 critical points can explain the steady growth in SIPs.
  1. The first reason is fairly straight forward. Investors have experienced the simplicity of SIPs. With a large army of millennials entering the investment mainstream, the rule based approach to investing has an automatic appeal. SIPs fit perfectly into this logic.
  2. There is a sharp trend towards financial planning and most of the new SIP additions have pegged their SIPs to long term goals. Obviously, these long term goals like retirement, nest egg creation and child’s education are non-negotiable. This has resulted in SIP investors holding on through volatile times.
  3. Investors find it hard to comprehend the volatility in the stock markets. In the last one year, a handful of 10-15 high priced and richly valued stocks have been instrumental in return generation. It is only with SIPs that investors have been able to catch a portfolio of blue chip stocks with low volatility. That has made SIPs click.
  4. Data shows that the risk of SIPs can be minimized by holding on for a longer period of time. According to a CRISIL-AMFI study, the probability of negative returns on equity SIP is 25% over a one-year period. However, this falls to 8% over 3 years and 5% over 4 years. The probability of negative returns in a 5-year plus holding is zero, making a strong case for SIPs.
  5. Lastly, volatility of returns makes a case for SIPs. According to CRISIL-AMFI estimates, the range between maximum returns and minimum returns in SIP is very high for a 1 year holding period. However, if the SIP is held for more than 4 years, this gap narrows and steadies into the future. That makes SIPs more predictable.
Maximum Return
Chart Source: CRISIL

The bottom-line is that the combination of predictability and compounding has made SIPs work for Indian investors. The trend looks to be here to stay!

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