The SIP flow data for April 2022, released by AMFI on 10th May, shows some tapering after touching record levels of Rs124,566 crore for the full year FY22. For FY22, the annual SIP flows were 29.65% higher than the SIP flows recorded in FY21. For FY23, the SIP flow data has just about started, but despite a modest tapering from the March 2022 levels, the SIP flows are still robust at Rs11,863 crore in April 2022.
In September 2021, monthly SIP flows crossed Rs10,000 crore for the first time and in November 2021, it crossed Rs11,000 crore for the first time. These levels have been maintained since. In the month of February 2022, SIP flows tapered to Rs11,438 crore, but bounced back to a record of Rs12,328 crore in March 2022. But that is not the most exciting part of the story. What is remarkable is that SIP flows have sustained through a series of challenges like rising oil prices, persistent FPI selling, stressed Q4FY22 results, Fed hawkishness, etc. SIP flows reflect long-term retail conviction in equities.
How annualized SIP flows compare with previous years
FY23 may have just begun but we now have complete data for 6 years in terms of monthly and annual SIP flows. Barring an aberration in FY21, due to COVID, the trend has been steadily up. FY23 data is annualized, so not strictly comparable. However, with each passing month, the FY23 data will become more reflective of the SIP flow trend for the year.
Data Source: AMFI (FY23 data is annualized)
One reliable measure of the SIP flow trend is the average monthly SIP ticket (AMST), which shows the size of SIP flows on a monthly mean basis. This has risen steadily over last 6 years. For instance, the AMST was Rs3,660 crore in FY17, Rs5,600 crore in FY18, Rs7,725 crore in FY19, Rs8,340 crore in FY20, Rs.8,007 crore in FY21 and Rs10,381 crore in FY22. For FY23, the first month has started off on a much stronger note, but it remains to be seen how these SIP flows sustain as the global macroeconomic and geopolitical situation becomes more challenging in the coming months to come.
There are two important inferences one can draw from the early SIP data. Firstly, investors are increasingly looking at SIPs as a product to plan financial goals; and that is the way it should be. You cannot treat SIPs the same way you treat your trading portfolio. Secondly, one thing investors learnt during the pandemic is that when it comes to SIPs on equity funds, persistence pays. While many investors panicked during the COVID sell-off, it is those who persisted that laughed all the way to the bank. For a better grasp of the retail spread of SIPs we look at a more sustainable measure; the SIP folios data.
How SIP folios and SIP AUM panned out in April 2022
It is already evident that the SIP flows have grown appreciably in the last few years. The AMST is a good indicator of that growth. However, like in equities, it is the retail spread rather than the retail volumes that are really relevant. When it comes to equities, retail spread is judged through the number of trading and demat accounts. What is the equivalent in mutual funds. One can look at SIP folios and SIP AUM as proxies of retail spread. Folios are MF accounts unique to an AMC and is a litmus test of the retail spread of SIPs.
How did the SIP folios grow in the month of April 2022? The number of SIP folios increased from 527.73 lakhs in March 2022 to 539.02 lakhs in April 2022; a monthly net accretion of 11.29 lakh SIP folios or 2.14%. Are SIP folios actually a good barometer of retail appetite for mutual funds? While there are challenges like multiple folios in the name of the same investor and non-equity SIP folios, the SIP folio data gives a good broad indicator of the direction of retail appetite for equity mutual funds.
Let us now turn to the SIP AUM story. The SIP AUM (assets under management) increased from Rs576,358 crore in March 2022 to Rs578,086 crore in April 2022. This rise of 3% in SIP AUM is lower than the growth in the previous month. However, there is an important point to observe here. For the month of April 2022, the growth in SIP AUM was lower than in March 2022 but the growth in SIP folios was higher. That is an indication that SIP ownership is now becoming more widespread rather than concentrated among few investors. As of April 2022, SIP AUM accounted one-third of overall retail Mutual Fund AUM.
SIP stoppage ratio edges lower in April 2022
SIP stoppage ratio represents the ratio of SIP accounts discontinued in a specified period as a ratio of new SIP accounts opened. Lower this ratio, the better it is as it indicates the level of retention of SIP investors. Between October 2021 and March 2022, the SIP stoppage ratio spiked from 35.67% to 50.10%. This can be attributed to high levels of anxiety in markets. For the month of April 2022, the SIP stoppage ratio has edged slightly lower to 48.26%.
Generally, annualized SIP stoppage ratio of 40% to 45% is considered to be acceptable. While the SIP stoppage ratio averaged 41.74% for FY22, it has started off much higher at 48.26% in April 2022. The good news is that the rising trend of SIP stoppage ratio seen between October 2021 and March 2022 has been arrested. In 2020 and 2021 the SIP stoppage ratio gradually scaled up as the market uncertainty prolonged. In FY20, SIP stoppage ratio was 57.84% but spiked to 60.88% in FY21, amidst COVID-19 stress. In FY22 median SIP stoppage ratio was down to 41.74%. However, that is the level to achieve on a monthly basis to avoid disruption of SIP flows in future.
The early signals on the SIP front in April 2022 has been that investors have persisted with SIPs and most retail investors still look at SIPs as an onboarding strategy. In the last few months, there has been sustained penetration into smaller towns, which can improve monthly SIP flows to Rs20,000 crore. That would be the next big challenge!