April 2023 SIP flows at Rs.13,728 crore despite tepid equity flows

13 May 2023 , 09:17 AM

The recently concluded FY23 was a record year for SIP collections. At Rs1.56 trillion for the full year, gross SIP flows were the best in history even as SIP flows crossed the Rs14,000 crore per month mark for the first time in March 2023. In comparison, the SIP flows in April 2023 were slightly lower at Rs13,728 crore, but that was to be expected. 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.

For the full fiscal year FY23, SIP flows were 25.2% higher compared to FY22 and 62.3% higher compared to FY21. Not only have the SIPs in India bounced back from the COVID lows, but they have also created a new and sustainable market for SIPs, especially among the young and upwardly mobile crowd. Indian investors are finally realizing that in the long run it is time in the market and not timing the market that matters. There is no better example of this philosophy than the systematic investment plan (SIP) of mutual funds.

April SIP flows 3.8% lower than March 2023

After scaling a 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. That could be due to the month of March seeing a lot of tax planning SIPs and that was likely to taper. Here is a quick look at the month-wise SIP flows for the last one year.

Month	Monthly SIP Inflows (Rs crore)
Apr-22	11,863
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

Data Source: AMFI

Detour on gross SIPs versus net SIPs

This is something a lot of people do not fully apprehend. Unlike the equity fund flows which are reported on a net basis (net of redemptions), the SIP numbers are reported on a gross basis. Here is why the difference is important.

• In FY23, against the gross SIP flows of Rs155,972 crore, the net SIP flows for the year were only Rs84,224 crore. That means; the net SIPs were just about 54% of the gross SIP inflows during the year. 

   

• What is more surprising is that despite the relatively low ratio of net to gross SIPs in FY23, the net SIP flows were much higher. For instance, SIP flows in FY23 at Rs84,224 crore was 77% higher than the net SIP flows of Rs47,619 crore in FY22. Incidentally, the net to gross ratio surged from 38% in FY22 to 54% in FY23.

   

• At the close of FY23, the total number of SIP accounts stood at 6.36 crore which represented a growth of 5.28 crore SIP accounts as of the close of FY22. In FY23, equity funds saw net inflows of Rs1.46 trillion while passive index funds and index ETFs saw net flows of Rs1.57 trillion. This was largely offset by debt market outflows.

One reason for SIPs being high could be the withdrawal of the B-30 incentives for small cities. However, experts are of the view that the impact of such an announcement on flows into SIPs would be limited.

What we read from the average monthly SIP ticket (AMST)

At Rs155,972 crore, FY23 is the biggest year in SIP collections by a margin. The table below captures the data for the last 7 full fiscal years from FY17 to FY23. The If we look at the underlying trend, SIPs have been consistently growing. In fact, annual SIP collections are up 4-fold in the last 6 years. It remains to be seen how FY24 pans out, but the good thing is that investors are now looking at SIPs as a long term story rather than a play on market cycles.

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 #	Rs13,728 crore	Rs13,728 crore

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

FY24 appears to have started on a good note with AMST higher than previous years, but this is not representative as it is just one month of data. What exactly is the AMST? SIP flows are more straight forward, but an interesting metrics to evaluate SIP intensity is 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. This has been steadily increasing over the last 6 years, as illustrated in the table; and that is the good news. 

How SIP folios and SIP AUM pan out in April 2023?

SIP flows in value terms can be enticing, but it can also be sensuously misleading. It fails to 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 of SIP flows.

How did the SIP folio story pan out in April 2023? The number of SIP folios increased from 635.99 lakhs in March 2023 to 642.34 lakhs in April 2023. That is monthly net accretion of 6.35 lakh SIP folios or 1.00%. While the gross SIP growth has been robust, the net impact is tepid due to a higher proportion of SIP closures in FY23, which we will come back to later.

What about SIP AUMs on a yoy basis? Between March 2023 and April 2023, SIP AUM increased from Rs683,296 crore to Rs717,176 crore; a growth of 4.96%; 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.

SIP stoppage ratio needs to urgently come down

SIP stoppage ratio is the ratio of SIP accounts discontinued to the new SIP accounts opened. It shows the stickiness or SIP retention. Lower this ratio, the better it is since it indicates that fewer SIPs are either being discontinued or not renewed. The table below captures the SIP stoppage ratio over the last 4 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%	67.54%

Data Source: AMFI (* - 1 month data annualized)

The spike in SIP stoppage ratio in FY20 and FY21 was understandable as it 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 much higher than the ideal range of 40% to 45% for SIP stoppage. For April 2023, SIP stoppage ratio spiked to 67.54%, which largely offsets the advantages of SIP growth. 

The good news is that SIPs have just about scratched the surface of the potential that is available in India to implement financialization of savings. India is an economy with $3.4 trillion of GDP and set to become $5 trillion by 2030. Even if you consider the number of mobile connections or bank accounts, SIP numbers are way too small compared to their real potential. Therein lies the biggest opportunity to tap on the SIP front; but that is a different subject matter altogether.