For a moment, forget about the vagaries of equity fund flows. The big redeeming feature has been the SIP flows over last four months. Last month, we had spoken about the next target being monthly SIP flows getting closer to Rs10,000cr and in Jun-21 we have surely moved closer to that magic figure. If SIP flows in Apr-21 stood at 8,596cr and for May-21 at Rs8,8819cr, then Jun-21 SIP flows improved further to Rs9,156cr. The real issue is that the momentum of SIP flows, which actually started in Mar-21 with Rs9,182cr, has sustained in the first quarter of the new fiscal. That is the encouraging news!
FY22 SIP flows look poised to move to a higher plane
For starters, the 6 bars in the chart below are not exactly comparable. While the data from FY17 to FY21 represent the actual data on annual SIP flows, the FY22 data is annualized. You can argue that annualizing 3-month data can be misleading but with each passing month, this last bar will get more representative of FY22. If SIP flows stagnated overall between FY19 and FY21, then the early promise is that FY22 could be a lot better.
It is evident that the direction of SIP flows is moving to a higher plane and that is explicit in the slope of the trendline. Average monthly SIP ticket has been 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. At the end of the Jun-21 quarter, the average monthly SIP flows in FY22 stand at Rs8,857cr. That is a quantum jump over the previous years and the real test will be whether this trend sustains in the remaining 9 months.
FY22 SIP flows are crucial for a number of reasons. Firstly, it will indicate if the post-pandemic recovery is reflected in enhanced retail investments in mutual funds. Secondly, SIP flows will be an indicator of how much of the retail equity euphoria gets translated into SIPs. After all, when demat accounts are growing exponentially, can SIPs be too far behind?
SIP folios cross the 4 crore mark for the first time
The monthly-wise SIP chart shows a clear phase when the SIP flows were below Rs8,000cr per month but that appears to have changed for the better since March. The challenge is getting to a higher trajectory.
Let us now turn to the all-important SIP folio story. The number of SIP folios increased from 388.36 lakhs in May-21 to 402.03 lakhs in Jun-21; a monthly net addition of 13.67 lakh SIP folios or 3.52%. During the same period, the SIP AUM (assets under management) grew from Rs467,366cr to Rs483,964cr; a growth of 3.6%. The SIP AUM growth in Apr-21 has been driven by growth in folios despite indices being almost flat during Jun-21.
Here is how the share of SIP AUM in overall equity fund AUM changed in Jun-21? As of Jun-21, SIP AUM stood at Rs483,964cr out of an average equity AUM of Rs10,95,653cr, giving SIP AUM a share of 44.17%. SIPs are certainly playing a pivotal role in the overall equity AUM.
SIP stoppage ratio falls sharply to 42% in FY22
SIP stoppage ratio represents the ratio of number of SIP accounts discontinued in a certain period to the number of new SIP accounts opened. Lower this ratio, it is better and indicates greater stickiness among SIP investors. The stoppage ratio trend paints an incisive picture.
There are no hard and fast rules regarding benchmark SIP stoppage ratio but normally 40% to 50% is considered healthy. In FY20, the SIP stoppage ratio stood at 57.8% but it worsened to 60.9% in FY21, largely due to COVID-19 stress in the first half of FY21. Many retail investors had been forced to discontinue SIPs to conserve resources. FY22 has begun with a healthy average SIP stoppage ratio of 42.01%. What is more interesting is that in the first 3 months the SIP stoppage ratio has been consistently trending lower.
SIPs have come of age in a number of ways
In the month of Jun-21, the total number of SIP accounts crossed the 4 crore mark for the first time. That is not surprising considering the proliferation of demat accounts in India. The second big trend is the SIP AUM getting closer to Rs500,000cr, which it should hopefully traverse by August or September. For a vast country like India, the real critical mass would be achieved if the SIP folios cross the 10 crore mark and the SIP AUM crosses the Rs10 trillion mark. If you go by the current pace of SIP flows, accretion of SIP folios and falling SIP closure ratio; that day should not be too far off. FY22 could be that acid test of a new trajectory for SIPs.