June 2022 SIP flows stable at Rs12,276 crore as investors persist

11 Jul 2022 , 12:05 PM

It may be recollected that in FY22, SIP flows overall had touched record levels of Rs124,566 crore and going by the early estimates for the first 3 months, FY23 promises to be bigger and smarter in terms of SIP flows. In April 2022, there had been a modest tapering of SIP flows to Rs11,863 crore but bounced back to Rs12,286 crore in the month of May 2022. For June 2022, SIP flows were stable at Rs12,276 crore, despite the plethora of global and domestic headwinds. Before the maze, a quick detour on the power of SIPs!

A quick detour: SIPs and the power of regular tax planning

Before going into the finer aspects of the SIP flows in June 2022, let us take a quick detour and look at how tax planning can leverage SIPs effectively.

1. The advantage of rupee cost averaging is already well documented about SIPs. By doing SIP on an ELSS (tax saving) fund, the same benefits of rupee cost averaging can be extended to your regular tax planning exercise also.
2. SIP on ELSS can enhance effective yield. This is true of all ELSS funds, but let us spend a moment. ELSS funds give benefits under Section 80C. If you earn 12% on your ELSS investment in 1 year, at 20% tax rate, that is equivalent to 15% effective yield.
3. Above all, SIPs on ELSS ensure that your tax planning is in sync with your income flows and also in sync with your financial goals. There is no last minute running around to arrange funds to invest and reduce your tax liability.

So ELSS plus SIP can be a potent combination, but now back to SIP data.

How we read the SIP flow story for June 2022

FY23 may have just completed one quarter, but we now have data for 6 years in terms of monthly and annual SIP flows. If you look at the underlying trend, it has been consistently growing, except for FY21, due to the pandemic. A small caveat; FY23 data is annualized, so not strictly comparable. However, with each passing month, the FY23 data is increasingly reflective of the full-year trend. In FY22, these trends were fairly reliable and hence we can get a realistic picture by extrapolating the short term SIP flow data.

Data Source: AMFI (FY23 data is annualized)

Since absolute numbers are misleading, the average monthly SIP ticket (AMST) can be an answer. This has been on a steady uptrend over last 6 years. AMST was Rs3,660 crore in FY17, Rs5,600 crore in FY18, Rs7,725 crore in FY19, Rs8,340 crore in FY20, Rs.8,007 crore in FY21 and Rs10,381 crore in FY22. In FY23, AMST as of June 2022 stands at Rs12,142 crore.

What are the key takeaways? Firstly, SIP flows have held robust even in the absence of NFO flows, so they are literally driving equity fund flows. Secondly, SIP flows have remained stable amidst headwinds like recession fears, China slowdown, rising inflation, OPM stress, valuation worries etc. Investors have learnt that in SIPs persistence pays rich dividends.

Dissecting the SIP folio and SIP AUM story for June 2022

SIP flows in rupee terms can be enticing and simple, but also partially misleading. SIP flows do not tell you about how retail the SIP flows are. That is captured by parameters like SIP folios and SIP AUM. SIP folios and SIP AUM can be used as proxies for assessing retail spread, or you can call it the number of active retail investors in SIPs. Folios, by the way, are MF accounts unique to one particular mutual fund AMC.

Now for the SIP folio growth story in June 2022? The number of SIP folios increased from 548.41 lakhs in May 2022 to 554.89 lakhs in June 2022. That is monthly net accretion of 6.48 lakh SIP folios or 1.18%. The momentum of SIP folio accretion has been falling, but that can be attributed to uncertain market conditions. One can argue that folios do have challenges like multiple folios of the same investor and non-equity SIP folios. However, even after you adjust for these factors, SIP folios are still a good approximation of retail appetite for equity mutual funds. It may not be precise; but gives a fair median picture.

What about SIP AUMs? The SIP AUM (assets under management) decreased from Rs565,706 crore in May 2022 to Rs551,189 crore in May 2022. This fall of  -2.57% in SIP AUM in June 2022 can be attributed to the sharp fall in equity indices. However, there is an observation here. The fall in SIP AUM in June 2022 has been rather sharp, but the SIP folios have still seen robust accretion. In short, retail appetite for equity funds is robust. As of June 2022, SIP AUM accounts for one-third of overall retail Mutual Fund AUM.

SIP stoppage ratio spikes in June 2022

SIP stoppage ratio is the ratio of SIP accounts discontinued in a specified period to the new SIP accounts opened. Lower this ratio, the better it is as it indicates higher retention of SIP investors. Some of the trends are interesting. For FY20, the SIP stoppage ratio for the full year was 57.84% while for FY21 it was 60.88%.

One can attribute the high SIP stoppage ratios in FY20 and FY21 to the COVID induced uncertainty. However, in FY22, the SIP stoppage ratio gravitated sharply lower to 41.74%. That is within the acceptable SIP stoppage ratio range of 40% to 45%. However, the first 3 months of FY23 have shown a sharp deterioration in the SIP stoppage ratio.

For the first quarter of FY23, the SIP stoppage ratio stands at 54.35%. However, what is more disconcerting is that for June 2022, the SIP stoppage ratio touched a high of 63.86%. Clearly, the volatility in the equity markets, the persistent FPI selling and the uncertainty in global markets are making investors tentative. Recession fears are adding to concerns.

The last big surge in SIP accounts came from the scores of millennials entering the equity and mutual fund market. That trend may have saturated for now as they go through a reality check. The next big leap is not just about millennials or the TINA factor. It is about enticing the millions of untapped customers with bank accounts and mobile connections and drawing them into the MF SIP fold. That can be a separate debate altogether!