May 2023 SIP flows at Rs. 14,749 crore, touch all-time high

11 Jun 2023 , 09:16 AM

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 and spiked further to Rs14,749 crore in May 2023. That is an average SIP flow of Rs14,239 of gross flows in FY24, in the first two months. SIP and retail mutual fund investors automatically tend to become wary after a sharp rally in the markets as most SIPs do not work as well as a lumpsum investment in a rising market. However, that has not deterred the SIP flows in the latest month.

For the full fiscal year FY23, SIP flows were 25.2% higher compared to FY22 and 62.3% higher compared to FY21. To an extent, one can say that the SIP flows in India have bounced back from the COVID lows. Not just that; it has also created a new and sustainable market for SIPs, especially among the young and upwardly mobile crowd. Also, the special incentive scheme for the tier-2 and tier-3 cities have contributed to bringing more people into the SIP mainstream. Indian investors appear to be realizing that in the long run it is time in the market and not timing the market that matters. That is best exemplified by SIPs.

May 2023 SIP flows 7.4% higher than April 2023

After scaling record level of gross SIP flows at Rs14,276 crore in March 2023, the April 2023 SIP flows were nearly 3.8% lower in comparison. However, May 2023 saw a bounce back to Rs14,749 crore of SIP flows, a MOM bounce of 7.4% as shown in the table below.

Monthly MF Data	Monthly SIP Inflows  (Rs crore)
May-22	12,286
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

Data Source: AMFI

Is the May 2023 spike due to the holiday effect?

Last month, in our SIP detour, we had seen how the understand of gross flows and net flows have an impact on our understanding of mutual fund flows. Investors often get confused as to why  despite aggressive SIP flows, the net inflows into equities are not so attractive. That is due to two reasons. Firstly, not all SIP flows are equity flows and it includes some portion of hybrid flows and passive flows too. Secondly, SIP flows are reported on a gross basis while the monthly equity flows are reported on a net basis. But, we look at an altogether different point in the latest issue. We look at the holiday effect on SIP flows.

Why did the SIP flows fall by -3.8% in the month of April and then spike by 7.4% in the month of May 2023? This is due to the two market holidays that we had towards the close of May. As a result, a lot of the month end flows of April got recorded in May 2023. That is the reason, the April SIP flows appeared to fall more than normal while the May SIP flows appear to have bounced more than normal. If that holiday effect is eliminated then the SIP flows of March, April and May 2023 should depict more of a smooth trend. But that is just for understanding. We now get to the brass tacks of SIP flows in May 2023.

Reading the language of the SIP Ticket AMST

At Rs155,972 crore, FY23 may have been the biggest year in SIP collections by a margin. However, if early trends are anything to go by, then FY24 promises to be even bigger. The table captures the data for the last 7 full fiscal years from FY17 to FY23. SIPs have been consistently growing, barring the brief interjection of the COVID pandemic. Annual SIP collections are up 4-fold in the last 6 years. Early trends suggest that FY24 could be at least 10% better than FY23, even on such a high base.

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 #	Rs170,862 crore	Rs14,239 crore

Data Source: AMFI (# – 1 month data annualized)

FY24 appears to have started on a good note with AMST 9.5% higher than previous years. This is just indicative since the average is based on just two months of SIP flow data. However, as the time goes up, this number becomes increasingly representative. But, what exactly is the AMST? It is a measure of SIP intensity. It is nothing but the average monthly SIP ticket (AMST). That is the monthly average SIP flow during any year, captured in the last column of the above table. The data for the previous 7 years is actual data, while the data for FY24 is annualized base on two-month data.

SIP folios and SIP AUM: the accretion story in May 2023

SIP flows in value terms can be enticing, but it can also be extremely misleading too. SIP flows capture quantum of flows but miss out on the extent and quality of retail participation. SIP flows do not exactly capture retail intensity as clearly as the growth in SIP folios. In fact, SIP folios and SIP AUM are proxies for assessing retail spread, although SIP folios (MF accounts unique to an AMC) are more reliable as a proxy for retail intensity. One can argue that SIP folios are not unique, but they still capture retail intensive much better.

How did the SIP folio story pan out in May 2023? The number of SIP folios increased from 642.34 lakhs in April 2023 to 652.85 lakhs in May 2023. That is monthly net accretion of 10.51 lakh SIP folios or 1.64%. 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 ratio analysis.

What about SIP AUMs on a yoy basis? Between April 2023 and May 2023, SIP AUM increased from Rs717,176 crore to Rs752,944; a growth of 4.99%; one of the best accretions seen in SIP AUMs in a single month; thanks largely to the market rally. Despite solid folio growth, SIP AUM growth faced challenges due to steady SIP closures. While the SIP closures have come down in May compared to April, they still remain much higher than the median.

SIP stoppage ratio: Reading between the lines in May 2023

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 because it indicates that fewer SIPs are being discontinued or not being renewed. The table captures SIP stoppage ratio over the 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%	61.91%

Data Source: AMFI (* – based on 2-months data)

The spike in SIP stoppage ratio in FY20 and FY21 was driven by COVID uncertainty and withdrawals for cash flow emergencies. In FY22 the SIP stoppage ratio fell to 41.74%. However, the SIP stoppage ratio has bounced back to 56.94% in FY23, which is higher than the ideal range of 40% to 45% for SIP stoppage. For May 2023, SIP stoppage ratio fell from 67.54% to 57.45% MOM. While the monthly SIP stoppage appears to have come down, the overall figure for FY24 still remains quite. Going ahead, the real challenge will be containing this SIP stoppage ratio as it can offset most of the efforts in boosting the SIP story.