FY24 SIP flows get tantalizing close to ₹2 Trillion

12 Apr 2024 , 01:37 PM

MARCH 2024 SIP FLOWS – KABHI KHUSHI KABHI GHAM

The month of March 2024 was a combination of hope and disappointment. It was disappointing because the SIP flows were expected to cross ₹20,000 Crore in March, but it could just scale to ₹19.271 Crore, albeit an all-time record for monthly SIP flows. As a result, the full year SIP flows fell short of the ₹2 Trillion mark, but was still a good 27.73% higher than the total SIP flows in FY23. However, the month of March 2024 also saw overall mutual fund AUM falling from ₹54.54 Trillion to ₹53.40 Trillion. However, that was more due to year-end selling in liquid funds by the treasuries.

Despite the disappointment on March 2024 SIP numbers, the big news was that SIPs set another record month with gross inflows of ₹19,271 Crore for the month of March. There was some element of profit booking and loss farming happening, which slowed down the SIP flows. Also, the investor appeared to be a little cautious in March on account of the record highs on the Nifty and Sensex; as well as the persistent warnings issued by SEBI on valuations of mid-cap and small-cap stocks. One argument is that the month-end flows may have been impacted due to the slew of holidays towards the end of March, and that is most likely true. However, what the robust SIP flows demonstrate is that now ₹20,000 Crore could become the new normal for monthly SIP flows.

QUICK DETOUR – HOW THE 8-4-3 PRINCIPLE WORKS IN SIPS

Investors often wonder about how SIPs manage do create so much wealth over a long period of time, especially compared to the investment that you commit. The table below looks at a ₹30,000 per month SIP, at 14.5% CAGR yield over 15 years.

Details	1-Year	3-Years	5-Years	8-Years	10-Years	12-Years	15-Years
Monthly SIP	30,000	30,000	30,000	30,000	30,000	30,000	30,000
Total Outlay	3,60,000	10,80,000	18,00,000	28,80,000	36,00,000	43,20,000	54,00,000
CAGR Yield	14.50%	14.50%	14.50%	14.50%	14.50%	14.50%	14.50%
Value	3,89,566	13,59,253	26,52,917	54,47,240	81,06,729	1,16,54,770	1,93,18,558
Return	29,566	2,79,253	8,52,917	25,67,240	45,06,729	73,34,770	1,39,18,558
R/ I ratio #	8.21%	25.86%	47.38%	89.14%	125.19%	169.79%	257.75%

# – Return to Investment Ratio

The above numbers demonstrate why the SIP wealth creation works like magic. There are 2 points to note here.

• The first is the 8-4-3 principle. If you look at the above table, the SIP generates a corpus of ₹50 Lakhs at the end of 8 years. However, from that point, the corpus nearly doubles in another4 years, and grows 4 fold from the 8-year base in another 3 years (i.e. by the 15th year). It is this 8-4-3 principle that is at the core of SIP wealth creation.
• The second hint is available in the last row, Returns / Investment ratio. You would notice that between the eight and ninth year, the returns on returns starts to generate more than the base yield. That is when the magic of compounding starts and this forms the basis for the 8-4-3 principle to operate.

The next time you wonder about the magic of SIPs, remember, there is more of persistence and less of rocket science about it.

MARCH 2024 SIP FLOWS AT RECORD ₹19,271 CRORE

Since June 2023, the SIP flows have created new records each successive month. In fact, if you just compare the March 2024 SIP flow with the March 2023 SIP flow, it is higher by 35%. 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 lower stoppage ratio. The SIP stoppage ratio may have increased in March, but that is more of an aberration due to the market indices at record highs. In short, 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)
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
Mar-24	19,271

Data Source: AMFI

SIP flows were broadly expected to cross ₹20,000 Crore in March 2024, but that was nipped by two factors. Firstly, there was some caution at higher levels of the Nifty and Sensex. Secondly, there were a string of holidays in late March resulting in a lot of investment plans getting carried forward to the next month. That is one reason, fresh SIP folio additions have been falling for the last 2 months in a row. However, it is the equity funds that dominate the SIP story; and with 30% returns on Nifty in FY24, equity remains an incredibly attractive asset class in India. Also, with the momentum thrust from Gen-X and Gen-Z customers; SIP flows can only get better from here.

SIP FLOWS – THE 8-YEAR STORY

The table below captures month-wise SIP flows into mutual funds since April 2016. Each milestone of an additional ₹1,000 Crore is a significant progress.

Month	FY24	FY23	FY22	FY21	FY20	FY19	FY18	FY17
March	19,271	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.

• FY24 was the best year in terms of milestones, with 5 milestones, compare to 3 milestones in Fy22 and 3 milestones in FY18. In fact, the number of milestones is a good proxy for whether the markets have been bullish or bearish in that particular year.
• Let us turn to the average gap between two milestones? A quick ballpark figure is 3-6 months, although is about 2 months in FY24. The yoy growth in March 2024 is over 35% in terms of SIP flows.
• A quick picture emerges from the March picture across the 8 years. The monthly SIP in March 2024 is 4.45 times the monthly SIP flows in March 2017. In each of the last 8 years, the March SIP flows have been progressively higher.

Of course, we have to now wait for FY25 to scale the ₹20,000 Crore monthly SIP barrier, but that is more of academic interest, than anything else.

WHAT WE READ FROM THE SIP TICKET STORY?

If FY23 was great for SIP flows, FY24 was far better. At ₹1,99,219 Crore, FY24 was the best full year in SIP collections. Based on simple comparison, the SIP flows in FY24 are 27.73% higher than FY23; 59.93% higher than FY22 and 107.35% higher than FY21. It looks like, the post pandemic momentum in mutual funds has clearly favoured 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	₹199,219 Crore	₹16,602 Crore

Data Source: AMFI

FY24 appears to have built up momentum on a good note with AMST at ₹16,602 Crore as of the end of FY24. The hope is that FY25 is able to see an AMST of over ₹20,000 Crore per month. Average monthly SIP ticket (AMST) measures SIP intensity, which is steadily on the way up. In fact, SIP Ticket AMST is up 354% as compared to FY17.

SIP FOLIOS IN MARCH 2024 – DID THEY PASS THE RETAIL LITMUS TEST

At the outset, there is pressure on new SIPs registered. From 51.84 Lakh fresh SIP registrations in January 2024, it fell to 49.80 Lakh in February 2024 and further to 42.87 Lakhs in March 2024. Clearly, higher levels of Nifty and Sensex are draining the market optimism. Since SIP flows in value terms are generally misleading, we will focus more on the SIP folio growth in the latest month. How did SIP folio story pan out in March 2024? The number of SIP folios increased from 820.18 Lakhs in February 2024 to 839.71 Lakhs in March 2024; an effective monthly net accretion of 19.53 Lakh SIP folios or 2.38%. SIP folios are unique to an AMC, but not about unique customers. For instance, while there are 17.78 Crore mutual fund folios in India, there are only 4.45 Crore unique customers as identified by PAN. SIP folios, however, are the best approximation for retail participation in mutual funds. SIP folios at 8.39 Crore is approaching 50% of the total SIP folios in India.

What about SIP AUMs on a yoy basis? Between February 2024 and March 2024, the SIP AUM surged from ₹10,52,566 Crore to ₹10,71,666 Crore; a surge of 1.81% over February 2024 SIP AUM. This is lower than the growth in the previous 2 months, but that is because the market performance in March was erratic and there has been a general sense of caution among investors at record levels of the Nifty and Sensex. The next target is ₹10 Trillion SIP AUM mark, while the monthly SIP flows are set to touch ₹20,000 Crore in FY25.

SIP STOPPAGE RATIO SPIKES TO THE YEAR-END EFFECT

AMFI reports monthly SIP flows on a gross basis and not on a net basis. That gap is largely explained by the SIP stoppage ratio. Now SIP stoppage ratio is the ratio of SIP accounts discontinued to new SIP accounts opened. Lower the SIP Stoppage Ratio, the better it is. In January and February 2024, SIP stoppage ratio fell below 50% mark for first time in FY24; but March 2024 saw a bounce in the SIP stoppage ratio back to above 50 levels.

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	Mar-24
50.69%	54.19%	51.60%	45.89%	42.83%	54.40%

Data Source: AMFI

Apparently,  after starting off at an elevated SIP stoppage ratio at 67.54% in April 2023, the SIP stoppage ratio trended lower to 42.83% in February 2024, before recording a year-end surge in the SIP stoppage ratio to 54.4% in March 2024. The average SIP stoppage ratio for last 4 months is still below the 50-mark. However, it must be noted that, such high levels of Nifty and Sensex make people wary of renewing SIPs and anecdotal evidence is that SIP stoppages tend to rise as the markets touches new peaks. That was visible in March 2024.

ANNUAL SIP STOPPAGE VOLATILE SINCE THE PANDEMIC?

Here is the SIP stoppage ratio in last 5 fiscal years with the updated SIP stoppage ratio for the 12 months of fiscal year FY24.

FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24
57.84%	60.88%	41.74%	56.94%	52.41%

Data Source: AMFI

Between February 2024 and March 2024, the cumulative SIP stoppage ratio for FY24 marginally rose by 22 bps to 52.41%. However, compared to full year FY23 SIP stoppage ratio, the FY24 SIP stoppage ratio is a good 453 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 sharply in FY22 to 41.74%.

Is there anything like the ideal stoppage ratio range? The preferred range for SIP stoppage ratio is of 40% to 45%. That has been achieved in some months, but it is yet to be achieved on a full year cumulative basis. 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 amidst greater financial inclusion. The challenge is to keep the SIP stoppage ratio in check.