February 2024 SIP inflows at ₹19,187 Crore; as SIP folios cross 8.2 Crore

12 Mar 2024 , 11:45 AM

The month of February 2024 saw the mutual funds once again create record on various fronts. For instance, the overall AUM of Indian mutual funds touched a record high of ₹54.54 Trillion. In dollar terms, that translates into $660 Billion of AUM and other large economies like the US have seen the momentum of mutual fund flows build up after the AUM had crossed $1 Trillion. More importantly, the total AUM of Indian mutual funds at $660 Billion is now getting close to the FPI AUC (assets under custody) of $750 Billion. But, the big news was that SIP set another record month with gross inflows of ₹19,187 Crore for the month of February. Last year, February flows had suffered due to fewer number of days. That was not the case in this year as SIP flows again set a new record.

Quick Detour – The Strange Dichotomy of step-up SIPs

In the last few years, step-up SIPs have picked up pace to a large extent and they also make sense. As your income increases, you must allocation more (in rupee terms) to your savings and long term investment. Do step-up SIPs add value? Let us compare two SIPs of Rs10,000 per month for 20 years yield CAGR returns of 14% per year. The only difference is that the in the second case (stepped-up SIP), the SIP amount is increased by 10% each year. Here are our comparative findings.

• In the first case of a pure SIP, the investor will contribute ₹24 Lakh over a 20 year period. This amount will grow to ₹131.63 Lakhs. Thus, the total wealth ratio at the end of 20 years in this case will be 5.48X.
• In the case of (10% annual step-up SIP), the investor will contribute ₹68.73 Lakh over a 20 year period, which will grow to ₹266.04 Lakhs. Thus, the total wealth ratio at the end of 20 years in the case of step-up SIP will be 3.43X

Now comes the real dichotomy here. The stepped up SIP has a lower wealth ratio compared to the plain vanilla SIP. Do step-up SIPs really add value. We need to understand the reason for this lower wealth ratio in a step-up SIP. In a step-up SIP, the SIP contribution is rising by 10% each year. The real compounded effect on contributions is happening in the later years. However, there is not enough time for these contributions to earn returns. That is the reason the step-up SIP wealth ratio is lower. The reason, it still makes sense is that by just raising 10% SIP contribution each month, you are nearly doubling your wealth compared to the plain vanilla SIP. That is the real perspective about step-up SIPs.

February 2024 SIP flows at record ₹19,187 Crore

Since June 2023, the SIP flows have been creating new records each successive month. In fact, if you just compare the February 2024 SIP flow with the February 2023 SIP flow, it is higher by 40%. That gives an idea of the momentum of SIPs that we got to see in the last one year. More importantly, even as the gross SIP flows are growing, it is happening with a sharply lower stoppage ratio. That means, the net impact of SIP flows is much more that what this gross growth number shows on SIPs.

Monthly MF Data	Monthly SIP Inflows (₹ Crore)
Feb-23	13,686
Mar-23	14,276
Apr-23	13,728
May-23	14,749
Jun-23	14,734
Jul-23	15,245
Aug-23	15,814
Sep-23	16,042
Oct-23	16,928
Nov-23	17,073
Dec-23	17,610
Jan-24	18,838
Feb-24	19,187

Data Source: AMFI

The last one year of SIP data shows steady growth in SIP flows with new records set in each month since June 2023. In the last 13 months, there were 3 occasions (February 2023, April 2023, and June 2023) when sequential SIP flows were lower than the previous month. However, in all these cases, the fall was marginal. Interestingly, last year the SIP flows fell in February due to fewer number of days. Even that has been overcome in February 2024. While SIP flows do go into all categories of mutual funds, it is the equity funds that dominate the SIP story. As equity continues to be an attractive asset class, the momentum thrust from Gen-X and Gen-Z customers are also adding to SIP customer accretion.

It looks like “Ab 20,000 door nahi”

In December, we had asked if ₹20,000 Crore monthly SIP flows would be possible by March 2024. Now that looks very likely. The table below captures month-wise SIP flows into mutual funds since April 2016. Each milestone of an additional ₹1,000 Crore in monthly SIP flow has been shaded to highlight time taken.

Month	FY24	FY23	FY22	FY21	FY20	FY19	FY18	FY17
March		14,276	12,328	9,182	8,641	8,055	7,119	4,335
February	19,187	13,686	11,438	7,528	8,513	8,095	6,425	4,050
January	18,838	13,856	11,517	8,023	8,532	8,064	6,644	4,095
December	17,610	13,573	11,305	8,418	8,518	8,022	6,222	3,973
November	17,073	13,306	11,005	7,302	8,273	7,985	5,893	3,884
October	16,928	13,041	10,519	7,800	8,246	7,985	5,621	3,434
September	16,042	12,976	10,351	7,788	8,263	7,727	5,516	3,698
August	15,814	12,693	9,923	7,792	8,231	7,658	5,206	3,497
July	15,245	12,140	9,609	7,831	8,324	7,554	4,947	3,334
Jun	14,734	12,276	9,156	7,917	8,122	7,554	4,744	3,310
May	14,749	12,286	8,819	8,123	8,183	7,304	4,584	3,189
April	13,728	11,863	8,596	8,376	8,238	6,690	4,269	3,122

Data Source: AMFI

Here are some key takeaways from the 8-year SIP flow numbers.

24. SIP milestones are bunched in certain years. For example, FY18 and FY22 and 3 milestones while FY24 already has 5 milestones in 11 months and it could well be 6 milestones in FY24.
25. Let us turn to the average gap between two milestones? A quick ballpark figure is 3-6 months, with January and February 2024 seeing successive clusters for the first time in the last 8 years. The yoy growth in February 2024 is over 40% in terms of SIP flows.
26. There is only one occasion in the last 7 years, when the next milestone was inordinately delayed. That was the move from ₹8,000 Crore milestone to ₹9,000 Crore milestone taking full 27 months. That was an exceptional case due to the COVID pandemic impact.

With a longer month in March and year end flows automatically earmarked in March, SIP flows of ₹20,000 Crore should finally be achieved in March 2024. We have to wait and see.

What we read from the SIP ticket story?

If FY23 was great for SIP flows, FY24 promises to be even better. At ₹1,55,972 Crore, FY23 was the best full year in SIP collections. However, the trend for FY24 at the end of 11 months suggests this year will be much bigger (it has already crossed full year FY23 levels in 11 months). Based on simple extrapolation, the SIP flows in FY24 could be 25.86% higher than FY23; 57.59% higher than FY22 and 104.32% higher than FY21. It looks like, the post pandemic momentum in mutual funds has clearly favoured the SIP flows.

Financial Year	Gross Annual SIP flows (₹ Crore)	Average Monthly SIP Ticket (AMST)
FY16-17	₹43,921 Crore	₹3,660 Crore
FY17-18	₹67,190 Crore	₹5,600 Crore
FY18-19	₹92,693 Crore	₹7,725 Crore
FY19-20	₹100,084 Crore	₹8,340 Crore
FY20-21	₹96,080 Crore	₹8,007 Crore
FY21-22	₹124,566 Crore	₹10,381 Crore
FY22-23	₹155,972 Crore	₹12,998 Crore
FY23-24 #	₹196,307 Crore	₹16,359 Crore

Data Source: AMFI (# – 11 month data annualized)

FY24 appears to have built up momentum on a good note with AMST at ₹16,359 Crore as of the end of 11 months. Of course, this is extrapolated data, but 11 months of data is statistically significant and does provide a very realistic full-year picture. Average monthly SIP ticket (AMST) measures SIP intensity, which is steadily on the way up. In fact, SIP Ticket AMST is up 347% as compared to FY17.

SIP folios in February 2024 – Retail Litmus Test

SIP flows in value terms can be enticing, but generally misleading. That is because, the AUM is a very macro figure that tends to miss out on the intensity of retail participation. The quality of the client distribution or retail penetration can be best understood if we look at the growth in SIP folios. How did SIP folio story pan out in January 2024? The number of SIP folios increased from 791.71 Lakhs in January 2024 to 820.18 Lakhs in February 2024; an effective monthly net accretion of 28.47 Lakh SIP folios or 3.60%. SIP folios are unique to an AMC, but not about unique customers. For instance, while there are 17.42 Crore mutual fund folios in India, there are only 4.2 Crore unique customers as identified by PAN. However, SIP folios are the best approximation for retail participation in mutual funds. More importantly, SIP folios at 8.20 Crore is now approaching 50% of the total SIP folios in India.

What about SIP AUMs on a yoy basis? Between January 2024 and February 2024, the SIP AUM surged from ₹10,26,996 Crore to ₹10,52,566 Crore; a surge of 2.49% over January 2024 SIP AUM. This is lower than the growth in the previous month, but that is because the market performance in February was not as robust as in January, despite the index scaling new highs. The good news is that the SIP AUM has now crossed the ₹10 Trillion mark, while the monthly SIP flows are all set to touch ₹20,000 Crore in March 2024.

SIP stoppage ratio tapers to yearly low of 42.83% in February

AMFI reports monthly SIP flows on a gross basis and not on a net basis. That gap is explained by the SIP stoppage ratio; which is the ratio of SIP accounts discontinued to new SIP accounts opened. SIP accounts are discontinued either due to redemption or they are just stopped, or not renewed. Lower the SIP Stoppage Ratio, the better it is. In January 2024, SIP stoppage ratio fell below 50% mark for first time in FY24; and February numbers are still lower.

Apr-23	May-23	Jun-23	Jul-23	Aug-23	Sep-23
67.54%	57.45%	54.93%	54.14%	54.54%	56.27%
Oct-23	Nov-23	Dec-23	Jan-24	Feb-24
50.69%	54.19%	51.60%	45.89%	42.83%

Apparently,  after starting off at an elevated SIP stoppage ratio at 67.54% in April 2023, the SIP stoppage ratio has trended lower to 42.83% in 11 months of FY24. The average SIP stoppage ratio for last 4 months is now below the 50-mark. One must not lose sight of the risk at current levels of the market. Normally, such high levels make people wary of renewing SIPs and anecdotal evidence is that SIP stoppages tend to rise as the markets touches new peaks. We have to wait and watch.

How annual SIP stoppage ratios have trended since the pandemic?

Here is the SIP stoppage ratio in last 5 fiscal years with the updated SIP stoppage ratio for the fiscal year FY24 comprising of 11 months data to February 2024.

FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24*
57.84%	60.88%	41.74%	56.94%	52.19%

Data Source: AMFI (* based on 11-months data)

Between January 2024 and February 2024, the cumulative SIP stoppage ratio for FY24 is down 138 basis points at 52.19%. Compared to full year FY23, the 11-month SIP stoppage ratio for FY24 is a full 475 basis points lower. The spike in SIP stoppage ratio in FY20 and FY21 was due to COVID uncertainty and withdrawals for cash flow emergencies. That also explains why the SIP stoppage ratio fell so sharply in FY22 to 41.74%.

What is the ideal stoppage ratio range? The preferred range for SIP stoppage ratio is of 40% to 45%. What that is achieved on a monthly basis, it is yet to be achieved on a full year cumulative basis. However, in the last two months, the SIP stoppage ratio has fallen sharply, hinting at rising investor confidence in the India mutual fund story. India’s GDP surge from the current $3.6 Trillion to $5.2 Trillion by 2028 will unleash a massive spree of consumption savings and investment. That is likely to be accretive for SIP growth. The challenge now is to keep the SIP stoppage ratio well reined in.