December 2022 SIP flows touch record highs

12 Jan 2023 , 10:28 AM

It may be recollected that in FY22, SIP flows touched a record level of Rs124,566 crore. If you go by the early estimates for the first 9 months up to September 2022, FY23 SIP flows promise to be closer to Rs152,205 crore or 22.19% higher on a y-o-y basis. Here is a quick peek at monthly SIP flows for the last 1 year.

The monthly SIP flows have been consistently trending higher over the last one year, with the monthly SIP flow up 20% on a yoy basis from Rs11,305 crore to Rs13,573 crore. This has been matched by a concomitant rise in the SIP folios as we shall see later. But first a quick detour into the five essential solutions that SIPs provide?

A quick detour: 5 solutions that SIPs provide

To understand why systematic investment plans (SIPs) of mutual funds have picked up traction in such a big way, one needs to understand the 5 pragmatic solutions that these SIPs provide to investors.

1. SIPs overcome the need to time the market. It is never easy to catch the bottoms and the tops of the market with precision, even for the most savvy investors. For retail investors, SIP offers the safest and surest solution to over the timing factor.

    

2. SIP is a discipline and that is what makes it different. It is not just about starting the SIP but it is about sustaining the SIP. SIP instils the basic investment rule that the surest way to be successful in equities in the long run is to be consistent and disciplined.

    

3. SIP is an auto financial planner. It offers the best way to manage your long term and short term goals with appropriate products. The wide array of products ensures that you just need to tag SIPs to goals and the rest happens in auto mode; well almost.

    

4. The big challenge for any investor is to ensure that the investment is in profit over the longer term. That is where SIP plays a key role. Through rupee cost averaging, the SIP manages to ensure that the average cost of acquisition is always trending lower.

    

5. Finally, for most people income flows are periodic (mostly monthly). Therefore periodic SIPs are automatically cut out to sync outflows with inflows. This makes SIP a mass product with features of active and passive investing built into it.

FY23 readies to be the biggest year for SIP collections

FY23 has already completed 9 months, and in addition we have data for 6 years prior to that in terms of annual SIP flows. If you look at the underlying trend, SIPs have been consistently growing, except for the brief lull in FY21 amidst the pandemic. The figure for FY23 is annualized, but with 9 months gone, you can safely say that the bar is fairly reflective of the emerging picture for FY23. In the last 2 years, annual SIP flows are up 58.4% while compared to the previous year FY22, the SIP flows are likely to be up by 22.2%.

An interesting metrics to evaluate the SIP intensity is the average monthly SIP ticket (AMST). This has been on a steady uptrend over last 6 years. Check out the table below.

Financial Year	Average Monthly SIP Ticket (AMST)
FY 2016-17	Rs3,660 crore
FY 2017-18	Rs5,600 crore
FY 2018-19	Rs7,725 crore
FY 2019-20	Rs8,340 crore
FY 2020-21	Rs8,007 crore
FY 2021-22	Rs10,381 crore
FY 2022-23	Rs12,684 crore

The big takeaway from the above data is that the recovery post COVID has been really strong and decisive. Despite headwinds, SIP flows have been consistently building up in FY23 and that can also be largely attributed to the surge in millennial participation in these systematic investment plans.

SIP folio, SIP AUM and the retail story for December 2022

SIP flows in value terms can be enticing and simple, but it can also be substantially misleading. That is because, SIP flows do not capture the retail intensity. That job is done quite effectively by SIP folios and SIP AUM. Both, SIP folios and SIP AUM can be used as proxies for assessing retail spread, although SIP folios (MF accounts unique to an AMC) can be considered to be more reliable as it is pure volume numbers.

How did the SIP folio growth story pan out in December 2022? The number of SIP folios increased from 604.57 lakhs in November 2022 to 612.43 lakhs in December 2022. That is monthly net accretion of 7.86 lakh SIP folios or 1.3%. In fact, SIP accretion has come down sharply in last 2 months and returning to the April-June trend. The folio growth reflects retail intensity and currently, SIP folio data for FY23 is certainly showing retail intensity!

What about SIP AUMs? If you look at FY23, between April 2022 and December 2022, the SIP AUM has increased sharply from Rs578,086 crore to Rs674,666 crore; a growth of 16.71%. However, despite smart folio numbers, the SIP AUM (assets under management) fell from Rs683,852 crore in November 2022 to Rs674,666 crore in December 2022. This fall can be attributed to the sharp fall in equity indices in December 2022, after the Fed minutes were too hawkish. As of December 2022, SIP AUM still accounts for over one-third of overall retail Mutual Fund AUM. SIP flows are driving most of the flows into equity mutual funds.

SIP stoppage ratio has increased in December 2022

SIP stoppage ratio is the ratio of SIP accounts discontinued in a specified period to the new SIP accounts opened. It shows the stickiness or the lack of it among investors in mutual fund SIPs. Lower this ratio, the better it is as it indicates higher retention of SIP investors. After all, you don’t want your SIP investors exiting and going away in large numbers. For FY20, the SIP stoppage ratio for the full year was 57.84% while for FY21 it was 60.88%. 

There was a reason for the same. The high SIP stoppage ratios in FY20 and FY21 can be attributed to the COVID induced uncertainty and cash flow emergencies. That was obvious because in FY22 the SIP stoppage ratio fell to 41.74%. Ideally, SIP stoppage ratio in the range of 40% to 45% is considered to be tolerable and also acceptable. In FY23 SIP stoppage ratio for the month of December 2022 has gone up very sharply to 66.22%.

For a more secular perspective, if you look at the cumulative SIP stoppage ratio for the first 9 months of FY23, it stands higher at 54.58%. This may not be as bad as the COVID years, but surely a lot worse than FY22. For now the focus must be to ensure that the SIP stoppage ratio comes down to well below 50% by the end of FY23, which should be comfortable.

SIPs are growing and they are growing at a rapid pace, but we may have just about seen the trailer. For an economy with $3.2 trillion of GDP and poised to become $5 trillion in the next 7 years, these SIP collections are nowhere close to full potential. What is likely is that the combination of digital spread and inclusion of smaller towns in the investment mainstream could make the big difference to the future. The potential is certainly huge.