SIP inflows cross Rs.1 trillion in first 7 months of FY24

13 Nov 2023 , 06:54 AM

Is it the Tendulkar effect on mutual fund SIPs?

Have you heard of the Tendulkar effect. Towards the last part of his career, Sachin Tendulkar had broken so many records in batting, that it had almost become a routine. Harsha Bhogle even commented that each time Sachin just walked into any ground, a new record got created. The analogy here is with the systematic investment plans (SIPs) of mutual funds in India. It started off as a small trend and in the last few years, SIPs have grown to become the driving force of Indian mutual funds. The growth has been so frenetic that each month, a new record gets created. 

Only in September 2023, SIP flows had touched a record Rs16,042 crore and October has seen a new record of Rs16,928 crore in terms of SIP flows. In the last 5 months since June 2023, the gross SIP collections have created new records each month. Just savour the sequence. SIP flows were Rs14,734 crore in June 2023, Rs15,245 crore in July 2023, 15,814 in August 2023, Rs16,042 crore in September 2023 and now Rs16,928 crore in October 2023. That is a new record in each of the last 5 months.

Will FY24 SIP flows scale new highs?

Why have SIP flows been so robust post the pandemic. There are no clear answers, but one argument is that the momentum picked up after people saw the patient investors laughing all the way to the bank. Patient investors, who persisted with their equity SIPs in the pandemic, made a fortune. That lesson is clear and people are now persisting with SIPs through weal and woe. A quick look back. For fiscal year FY23, SIP flows were 25.2% higher compared to FY22 and 62.3% higher compared to FY21. If we annualize the first 7-months of SIP flows and extrapolate for FY24, then the full year SIP flows at Rs1,83,840 crore promises to be 17.87% higher than FY23, 47.58% higher than FY22 and 91.34% higher than FY21. 

SIP flows in India may be reflecting the post-COVID bounce in the Indian economy and Indian markets. In recent months, the data appears to suggest that investors are not overtly perturbed by the market vagaries and they are willing to invest in SIPs for long term goals. That is the way it should be, and that is largely thanks to a young investor crowd. Millennial investors are naturally gravitating towards the power of mutual funds and their focus has been on persisting with SIPs.

October 2023 SIP flows on the threshold of Rs17,000 crore

After scaling record level of gross SIP flows each month since June 2023, we have just seen record SIP flows for the fifth month in a row. Last year, we had spoken about SIP flows stabilizing at around Rs20,000 crore per month, which looks perfectly possible and workable at this juncture; and that could well happen before March 2024 itself, if the momentum is sustained. The table below captures the month-wise gross SIP flows over the last one year.

Monthly MF Data	Monthly SIP Inflows  (Rs crore)
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
Jul-23	15,245
Aug-23	15,814
Sep-23	16,042
Oct-23	16,928

Data Source: AMFI

The last one year of SIP data shows steady growth in SIP flows with a new record being set in each of the last five months since June 2023. In the last one year, the monthly SIP flows are up 29.81%. For a long time, Indian investors were doing it all the wrong way. They were putting short term funds in equity and the long term funds like provident funds were going into bonds. That has reversed and that is largely thanks to SIPs. SIPs are bringing about a discipline in long term investing. This become  clearer, when we look at how each successive milestone of Rs1,000 crore additional SIP flow per month was achieved in last 7 years. 

What time Rs20,000 crore a month SIP flows?

The table below captures the month-wise SIP flows into mutual funds since April 2016. Each milestone of an additional Rs1,000 crore in monthly SIP flow has been shaded to show you the time taken to traverse. 

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		13,686	11,438	7,528	8,513	8,095	6,425	4,050
January		13,856	11,517	8,023	8,532	8,064	6,644	4,095
December		13,573	11,305	8,418	8,518	8,022	6,222	3,973
November		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

There are 4 major stories that we can read from the table above.

• Firstly, SIP milestones are bunched in 4 out of the last 7 years in March and on 2 occasions in December. While this may not have much sanctity, it does indicate that surges in SIP flows have come around the end of a quarter, probably HNI flows.
   
• Secondly, over the last 7 years, the crossing of a certain milestone has generally been very decisive in terms of future traction. For example, it rarely happens that the SIP flows dip once again, a classic example of sustained financialization of retail savings. 

   

• Thirdly, what is the average gap between two milestones? A quick ballpark figure will tell you that the average is between 3-6 months, with the latest surge from Rs15,000 crore a month to Rs16,000 crore happening in just 2 months flat and the next leap to Rs17,000 crore almost happening in just one month. 

   

• There is only one occasion in the last 7 years, when the next milestone was inordinately delayed. The move from the Rs8,000 crore milestone to Rs9,000 crore milestone took a full 27 months. That is largely due to the impact of the COVID pandemic and the 2 lost years in between when mutual funds went through a process of rediscovery.

The good news is that; at this pace, India can logically scale Rs20,000 crore per month of gross SIP flows by end of March 2024.

What we read from the SIP Ticket (AMST)

If FY23 was great for SIP flows, FY24 promises to beat that by a margin. At Rs155,972 crore, FY23 was the biggest year in SIP collections till date, if you look at full fiscal years. However, the trend for FY24 at the end of 7 months suggests that FY24 could be much bigger. If you extrapolate SIP flow numbers of the first 7 months of FY24, full-year SIP collections for FY24 could be closer to Rs183,840 crore. The annual SIP collections are up 4-fold in last 7 years. 

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 #	Rs183,840 crore	Rs15,320 crore

Data Source: AMFI (# – 7 month data annualized)

FY24 appears to have started on a good note with AMST above Rs15,300 crore as of the end of 7 months of the fiscal year. One can argue that this is still extrapolated data, but past experience shows that extrapolation of data beyond 4 months tends to reflect the full year picture fairly well. Average monthly SIP ticket (AMST) measures SIP intensity and that has been steadily growing since FY17.

SIP folios and SIP AUM: did retail intensity grow in October 2023?

SIP flows in value terms can be enticing, but also awfully misleading. SIP flows capture quantum of flows but miss out on the intensity and the breadth of retail participation. In short, the quantum of SIP flows is overly influenced by big deals, rather than the quality of the client spread. That gap is filled up by SIP folios data. How did the SIP folio story pan out in October 2023? The number of SIP folios increased from 712.94 lakhs in September 2023 to 730.03 lakhs in October 2023. That is monthly net accretion of 17.09 lakh SIP folios or 2.40%. SIP folios are unique to an AMC, so a person with investments across 6 AMCs would technically have 6 unique folio numbers, or more. To sum up the story, SIP folios do serve as a good proxy for retail intensity in mutual fund investments. 

What about SIP AUMs on a yoy basis? Between September 2023 and October 2023, the SIP AUM fell from Rs870,363 crore to Rs859,924; a fall of -1.20%. SIP AUMs tend to be less representative of retail intensity compared to SIP folios since the SIP AUM is also a function of movements in the index. Let us finally turn to the SIP closures and how the SIP stoppage ratio has panned out over time.

SIP stoppage ratio: Remains elevated at 56.27% for September 2023

AMFI reports monthly SIP flows on a gross basis and not on a net basis. That gap is filled by the SIP stoppage ratio. SIP stoppage ratio is the ratio of SIP accounts discontinued to new SIP accounts opened. When are SIP accounts discontinued? It can either be because the SIP accounts are fully redeemed, stopped, or just not renewed. This is more the case with time-bound SIPs. Lower the SIP Stoppage Ratio, it is considered to be better as it indicates that fewer SIPs are being discontinued or not renewed. Here is the SIP stoppage ratio in 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%	55.74%

Data Source: AMFI (* – based on 7-months data)

To begin with, there is some good news on the monthly data front. The SIP stoppage ratio for October 2023 was at 50.69%; sharply lower than 56.27% in September 2023, 54.54% in August 2023 and 54.14% in July 2023. October 2023 marks the lowest SIP stoppage ratio in the last 4 months. As a result, the cumulative SIP stoppage ratio for the first 7 months of FY24 is down 98 basis points at 55.74%. The spike in SIP stoppage ratio in FY20 and FY21 was driven by COVID uncertainty and withdrawals for cash flow emergencies. That is why, in FY22 the SIP stoppage ratio fell to a much more normalized level of 41.74%. In FY23, with the index at higher levels, global headwinds building up and overall volatility in the markets, the SIP stoppage ratio has again gone up. 

The outcome is that the FY24 cumulative SIP stoppage ratio has fallen nearly 100 bps to 55.74%. That is the second lowest in the last 5 years. However, empirical evidence suggests that the preferred range is of 40% to 45% for SIP stoppages. While the cumulative SIP stoppage for FY24 has progressively come down, the overall figure for FY24 still remains quite high at 55.74% and this can be attributed to the elevated levels of the Nifty and the Sensex. There have been concerns that there is a gap between gross SIP flows and net flows and that is explained by the SIP stoppage ratio. In India, the pace of SIP growth will happen on its own momentum, especially the influx of millennials. The big challenge will be on keeping the SIP stoppage ratio at much lower than the current levels. That will ensure that the hard-fought gains of SIP growth are not frittered away.