SIP inflows in November 2023 scale record Rs. 17,000 crore mark

11 Dec 2023 , 07:08 AM

How the SIP mindset changed post-COVID

To understand the rapid growth in SIPs in India, on must understand how the SIP story was impacted by the COVDI pandemic. During the pandemic, most people resorted to redeeming their SIP investments either in panic or to take care of temporary funding gaps. However, the investors who stuck on with their SIPs ended up laughing all the way to the bank. The post COVID rally ensued that the equity funds gave obscene returns and the SIPs invested at lower levels during the pandemic only served to magnify the returns. That explains why the SIP flows have seen a phenomenal increase in the post COVID period.

The month of November 2023 was another high for SIP flows. It was only in September 2023 that SIP flows had touched a record Rs16,042 crore, while October set a new record for SIP flows at Rs16,928 crore. The SIP flows in November 2023 stand at Rs17,073 crore, marking the highest ever SIP collections in any month. The monthly SIP flows have jumped from Rs14,000 crore a month to Rs17,000 crore a month in the current year itself. The question is how much higher will the FY24 SIP flows be compared to previous years.

Will FY24 SIP flows scale new highs?

That lesson from the pandemic was crystal clear; SIPs were about time and not timing the market. These lessons have been learnt and investors are persisting with SIPs through high and low. For fiscal year FY23, SIP flows were 25.2% higher compared to FY22 and 62.3% over FY21. If we annualize the first 8-months of SIP flows for FY24, then full year SIP flows at Rs1,86,470 crore can be 19.55% higher than FY23, 49.70% over FY22 and 94.08% over FY21. 

SIP flows in India also reflects the fact that Indian economy is poised to be the third largest economy in the world by 2030; after the US and China. In recent months, the data appears to suggest that investors are not overtly perturbed by market vagaries and they are willing to invest in SIPs for long term goals. Millennial investors are naturally gravitating towards the power of mutual funds and their focus has been on persisting with SIPs. After all, there is no point in sitting out or waiting on the sidelines in a market that is worth $4 trillion in market cap and poised to double in the next 6-7 years in sync with GDP growth.

November 2023 SIP flows break above 17,000 crore barrier

After scaling record level of gross SIP flows each month since June 2023, we have just seen that repeat for the sixth month in a row. Last year, we spoke about SIP flows stabilizing at around Rs20,000 crore per month, which now looks perfectly possible before March 2024, if momentum is sustained. The table captures month-wise gross SIP flows in last 13 months.

Monthly MF Data	Monthly SIP Inflows  (Rs crore)
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
Nov-23	17,073

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 six months since June 2023. In the last one year, the monthly SIP flows are up 28.31%. For a long time, Indian investors were getting their priorities wrong. They were putting short term funds in equity and the long term funds like provident funds were going into bonds. That is now reversing and it was actually long overdue. One can say; that is largely thanks to SIPs; which are bringing about a discipline, direction, and dedication to 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. 

Getting closer to the Rs20,000 crore monthly SIP flow

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	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

There are 5 major takeaways that we can decipher from the table above.

1. 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 analytical value, it indicates that surge in SIP flows come around the end of a quarter, and this is probably HNI flows.
    
2. Secondly, over the last 7 years, the crossing of a certain milestone has generally been very decisive and also trend setting. For example, it rarely happens that SIP flows dip once again, a classic example of persistent financialization of retail savings. 

    

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

    

4. 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 due to impact of the COVID pandemic and the 2 lost years.

    

5. FY24, is the third time in last eight fiscal years, when 3 milestones were covered in a single year; apart from FY18 and FY22. However, with 4 months to go, FY24 may even see two more milestones. FY20 was the only year without a single milestone.

At this pace, India can logically scale Rs20,000 crore per month of gross SIP flows by end of March 2024. A lot will depend on how the traction builds up.

What we read from the SIP Ticket (AMST)

If FY23 was great for SIP flows, FY24 promises to be better. At Rs155,972 crore, FY23 was the best year in SIP collections. However, the trend for FY24 at the end of 8 months suggests this year could be much bigger. If you go a step ahead and extrapolate SIP flow numbers of the first 8 months, full-year SIP collections for FY24 could be closer to Rs186,470 crore. 

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 #	Rs186,470 crore	Rs15,539 crore

Data Source: AMFI (# – 8 month data annualized)

FY24 appears to have started on a good note with AMST above Rs15,539 crore as of the end of 8 months. Of course, this is extrapolated data, but past evidence is that extrapolation of data beyond 4 months tends to reflect the full year picture fairly accurately. Average monthly SIP ticket (AMST) measures SIP intensity, which is steadily growing.

SIP folios and SIP AUM: did retail intensity grow in November 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 depth of retail participation. The quantum of SIP flows is influenced by big deals, rather than quality of client spread. That shortfall is made up by SIP folios. How did SIP folio story pan out in November 2023? The number of SIP folios increased from 730.03 lakhs in October 2023 to 744.14 lakhs in November 2023; monthly net accretion of 14.11 lakh SIP folios or 1.93%. SIP folios are unique to an AMC, so despite duplications, they are a good barometer of retail intensity.

What about SIP AUMs on a yoy basis? Between October 2023 and November 2023, the SIP AUM surged from Rs859,924 crore to Rs931,333; a surge of +8.30%. SIP AUMs tend to be less representative of retail intensity compared to SIP folios since SIP AUM is also a function of movements in the index. In fact, this surge in the SIP AUM in November is largely a function of index rally, but it does place the SIP AUM very close to the Rs10 trillion mark. 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 54.19% in November 2023

AMFI reports monthly SIP flows on a gross basis and not on a net basis. That gap is explained by the SIP stoppage ratio. SIP stoppage ratio is the ratio of SIP accounts discontinued to new SIP accounts opened. SIP accounts discontinued can either be because the SIP accounts are fully redeemed, stopped, or just not renewed. Lower the SIP Stoppage Ratio, it is considered to be better as it indicates that fewer SIPs are being discontinued and that is a sign of stickiness of SIP investments. Here is SIP stoppage ration month-wise in the current fiscal.

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
50.69%	54.19%

Apparently,  after starting off at an elevated level of SIP stoppage ratio at 67.54% in April, the SIP stoppage ratio has consistently been below the 55% mark through the rest of the year. Here is the SIP stoppage ratio in last 5 fiscal years with the updated SIP stoppage ratio for the latest fiscal year FY2023-24 comprising of 8 months to November 2023.

FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24*
57.84%	60.88%	41.74%	56.94%	55.54%

Data Source: AMFI (* based on 8-months data)

To begin with, there is mixed news on the monthly data front. The SIP stoppage ratio for October 2023 was at 50.69%; but again, bounced to 54.19%, probably an indication that people are getting wary at higher levels. However, SIP stoppage ratio still remains under 55% after a very disconcerting start to the year. The cumulative SIP stoppage ratio for the first 8 months of FY24 is down 20 basis points at 55.54%. 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%. 

The FY24 cumulative SIP stoppage ratio has fallen nearly 150 bps over FY23 to 55.54%. That is the second lowest in the last 5 years. However, the preferred range is of 40% to 45% for SIP stoppages, so there is still a long way to go. 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 with the influx of millennials into the investment ambit. The big challenge will be on keeping the SIP stoppage ratio much lower than the current levels. That will ensure that the gains of SIP growth are not frittered away. After all, it is not what  you get but what you retain that eventually determines your wealth. The same applies to SIPs as a product also.