June 2023 SIP flows flat at Rs. 14,734 crore, promises big FY24

12 Jul 2023 , 10:15 AM

The new fiscal has surely started with a bang. For FY23, the total gross SIP flows stood at Rs1.56 trillion for the full year, with monthly SIP flows crossed the Rs14,000 crore per month mark for the first time in March 2023. If you look at the SIP flows in FY24, it was Rs13,728 crore in April 2023, spiked to Rs14,749 crore in May 2023 and almost flat at Rs14,734 crore in June 2023. That is an average SIP flow of Rs14,404 of gross flows in FY24, in the first 3 months. For now, it looks like FY24 could be at least 10% better than FY23 in terms of SIP collections, but we have to await the final numbers to bs sure. That is because SIP investors are largely retail mutual fund investors. They automatically become wary after a sharp rally in the markets as SIPs do not work as well as a lumpsum investment in a rising market. For now, the markets are not experiencing any kind of caution.

For the full fiscal year FY23, SIP flows were 25.2% higher compared to FY22 and 62.3% higher compared to FY21. If we annualize the first 3-months of SIP flows in FY24, then the full year promises to report SIP flows that are 10.8% higher than FY23, 38.8% higher than FY22 and 79.9% higher than FY24. Clearly, SIP flows in India are a good representation of the post-COVID bounce in the Indian economy and the Indian markets. More importantly, COVID proved to be a great lesson for SIP investors. The ones who stuck on to their SIPs were the ones laughing all the way to the bank. That has attracted a new breed of young millennial investors into the SIP fold. The other interesting trend is that bulk of the SIP flows are not coming from the metros but from smaller towns, where the SIP cult is spreading rapidly. Investors have apparently learnt that in the long run it is time in the market and not timing the market that matters. Nothing is a better exemplar of that philosophy than SIPs.

June 2023 SIP flows absolutely flat compared to May

After scaling record level of gross SIP flows at Rs14,749 crore in May 2023, the June 2023 SIP flows were marginally lower at Rs14,734 crore. You can almost say the SIP flows in June were flat, although it was sharply higher than the average of the previous months. 

Monthly MF Data	Monthly SIP Inflows  (Rs crore)
Jun-22	12,276
Jul-22	12,140
Aug-22	12,693
Sep-22	12,976
Oct-22	13,041
Nov-22	13,306
Dec-22	13,573
Jan-23	13,856
Feb-23	13,686
Mar-23	14,276
Apr-23	13,728
May-23	14,749
Jun-23	14,734

Data Source: AMFI

Quick detour – How to convert lumpsum investments into SIPs?

In our Quick Detour section; we will look at how to convert a lumpsum investment into a SIP investment. That is a common question investors. They have received a lumpsum amount either from a sale of asset or as a special bonus. They want to invest in mutual funds, but are not sure whether this is the right time to invest or not. Their typical refrain is that it is OK with SIPs since rupee cost averaging ensures that timing does not matter. However, the lumpsum investment is all about timing. What if they get their timing wrong? The good news is that you can even convert a lumpsum investment into a SIP. Welcome to the world of Systematic Transfer Plans (STP).

Here is how a systematic transfer plan (STP) works. The lumpsum amount that you receive is not invested but parked temporarily in a liquid fund. Then a STP is set up in such a way that each month a fixed amount from the liquid fund is swept into an equity SIP. So, it works exactly like a SIP and you also get the benefits of rupee cost averaging. Here is why the STP adds value to the investor. Firstly, the lumpsum is parked in a liquid fund, so it continues to earn returns, at a rate higher than a savings bank deposit. Secondly, monthly sweep gives you all the benefits of a SIP. Normally, liquid funds do not carry exit load, but one must assess the tax implications of the move. However, the moral of the story is that there is a way to even convert your lumpsum amount into a systematic investment plan (SIP).

What we read from the SIP Ticket (AMST)

At Rs155,972 crore, FY23 was undoubtedly the biggest year in SIP collections by a margin. However, if early trends are anything to go by, FY24 promises to be even bigger. In fact, if you annualize the first quarter of FY24, then full-year SIP collections for FY24 could be closer to Rs172,844 crore. The table below captures the data for the last 7 full fiscal years from FY17 to FY23. The good news is that the annual SIP collections are up 4-fold in last 6 years. Early trends suggest that FY24 could be at least 10-11% better than FY23.

Financial  Year	Gross Annual SIP  flows (Rs crore)	Average Monthly SIP Ticket (AMST)
FY16-17	Rs43,921 crore	Rs3,660 crore
FY17-18	Rs67,190 crore	Rs5,600 crore
FY18-19	Rs92,693 crore	Rs7,725 crore
FY19-20	Rs100,084 crore	Rs8,340 crore
FY20-21	Rs96,080 crore	Rs8,007 crore
FY21-22	Rs124,566 crore	Rs10,381 crore
FY22-23	Rs155,972 crore	Rs12,998 crore
FY23-24 #	Rs172,844 crore	Rs14,404 crore

Data Source: AMFI (# – 3 month data annualized)

FY24 appears to have started on a good note with AMST being 10.8% higher than FY23. This is just indicative since the average is based on just one quarter of SIP flow data. However, as the time goes up, this number becomes increasingly representative. However, 4-5 months generally provide a good representation of the full year. The AMST is a measure of SIP intensity and denotes the average monthly SIP ticket (AMST). The data From FY17 to Fy23 is actual data, while the data for FY24 is annualized base on 3-month data.

SIP folios and SIP AUM: how it grew in June 2023

SIP flows in value terms can be enticing, but it can also be often misleading too. SIP flows capture quantum of flows but miss out on the intensity and quality of retail participation. That gap is filled up by SIP folios. SIP folios are mutual fund investor accounts unique to an AMC. An investor with investments across 4 AMCs will have 4 folios. However, all investments in a single AMC can be consolidated into a single folio. SIP folios may not be unique, but they are a lot more reliable as a proxy for retail intensity. 

How did the SIP folio story pan out in June 2023? The number of SIP folios increased from 652.85 lakhs in May 2023 to 665.37 lakhs in June 2023. That is monthly net accretion of 12.52 lakh SIP folios or 1.92%. While the gross SIP growth has been robust, the net impact has also improved due to a lower proportion of SIP closures in FY23, which we will come back to later in our SIP closure analysis.

What about SIP AUMs on a yoy basis? Between May 2023 and June 2023, SIP AUM increased from Rs752,944 crore to Rs793,609; a growth of 5.40%, which comes on top of a 4.99% growth in the previous month. However, this surge in SIP AUM is largely explained by the frenetic stock market rally. SIP stoppage remains a challenge. While SIP closures have come down in recent months, it still remains much higher than the median.

SIP stoppage ratio: What is the story in June 2023

Remember, AMFI reports SIPs on a gross basis. The SIP stoppage ratio is the ratio of SIP accounts discontinued to new SIP accounts opened. It shows stickiness or SIP retention. Lower this ratio, the better it is as it indicates that fewer SIPs are being discontinued or not being renewed. The table below captures SIP stoppage ratio over last 5 fiscal years.

FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24*
57.84%	60.88%	41.74%	56.94%	59.22%

Data Source: AMFI (* – based on 3-months data)

Clearly, the SIP stoppage ratio for June 2023 at 54.93% is lower than the SIP stoppage ratio of 57.45% in May 2023. Clearly, investors are getting stickier about the SIP folios. The spike in SIP stoppage ratio in FY20 and FY21 was driven by COVID uncertainty and withdrawals for cash flow emergencies. That is understandable. However, in FY22 the SIP stoppage ratio fell to a much more normalized level of 41.74%. 

However, the SIP stoppage ratio bounced back to 56.94% in FY23, which is much higher than the preferred range of 40% to 45% for SIP stoppages. While the cumulative SIP stoppage for FY24 has certainly come down, the overall figure for FY24 still remains quite high in absolute terms. Going ahead, the real challenge will be containing this SIP stoppage ratio as it can offset a lot of the fund infusion that SIPs are bringing in. That needs to be watched.