Gross versus Net SIP flows: what is a better indicator?

AMFI REFUSES TO DISCLOSE NET SIP FLOWS

If you are thrilled about the way the SIP flows have been building up each month, especially in FY24, there is another slightly darker side to it. Remember, that the SEBI only discloses the gross SIP number. So, the fabulous SIP flows of ₹23,332 Crore that we got to see in July 2024 was actually the gross SIP figure. The net SIP flows in the month of July 2024 (net of redemptions, stoppages, cancellations and rolling off SIPs is a much smaller figure. What is more interesting is the AMFI chairman, V N Chalasani, refused to disclose the net SIP figure as a matter of public disclosure. Chalasani has his own reasons for sticking to gross SIPs.

According to Chalasani, it is the gross SIP figure that reflects the flows into mutual funds via the SIP route. The net figure, according to the AMFI chair, may be distorted for a variety of reasons. Firstly, a lot of the SIP stoppages could just be investors shifting from SIPs to lumpsum investing. By calling it SIP redemptions, the picture may be misleading as, in reality, the investment may still be there in mutual funds. Also, Chalasani has underscored that many of the SIP cancellations are due to lethargy to renew or other technical reasons which lead to cancellations of the SIP. Hence, disclosing the net SIP figure may be too misleading, since the SIP AUM is eventually part of the overall mutual fund AUM. However, one cannot refute the fact that the trend of net SIP flows versus gross SIP flows can give some interesting insights into the mutual fund flows.

NET VERSUS GROSS SIP FLOWS – FY23

First and foremost, let us look at the data of gross SIP flows and net SIP flows for the year FY23, extending from April 2022 to March 2023. We have shown the gross SIP flows (as reported by AMFI), net SIP flows as reported by mutual fund registrars and the net to gross SIP ratio, shows the stickiness of the SIPs or the lack of it.

Data Source: AMFI & Cafemutual

Here are some of the key takeaways from the gross to net SIP flow tabulation for the fiscal year FY23.

• Gross SIP flows have been steadily progressing higher. The ratio of the gross SIP flows in the last month of FY23 to the first month of FY23 stood 20.34% higher, while the figure of net SIP flows were relatively more erratic through the year.
  
• The net SIP to gross SIP ratio had touched a high of 70.06% in June 2022 and a low of just 24.48% in November 2022. Interestingly, in 8 out of the 12 months, the net to gross SIP ratio was higher than the average, showing that November was largely skewed.
  
• For the full year FY23, the gross SIP flows stood at ₹1,55,972 Crore while the net SIP flows stood at ₹83,875 Crore, resulting in a net to gross ratio of 53.78%. This is roughly at par with the trends in the net to gross SIP folios too.

Let us now turn to how the situation changed in the fiscal year FY24.

NET VERSUS GROSS SIP FLOWS – FY24

Let us now turn to the data of gross SIP flows and net SIP flows for the year FY24, extending from April 2023 to March 2024. We have shown the gross SIP flows (as reported by AMFI), net SIP flows as reported by mutual fund registrars and the net to gross SIP ratio, shows the stickiness of the SIPs or the lack of it.

Data Source: AMFI & Cafemutual

Here are some of the key takeaways from the gross to net SIP flow tabulation for the fiscal year FY24.

• Gross SIP flows have been steadily and decisively progressing higher. The ratio of the gross SIP flows in the last month of FY24 to the first month of FY24 stood 40.38% higher, while the figure of net SIP flows were relatively more erratic through the year.
  
• The net SIP to gross SIP ratio had touched a high of 53.05% in November 2023 and a low of 36.04% in July 2023. Interestingly, in only 6 out of the 12 months, the net to gross SIP ratio was higher than the average, showing less volatility and skewness against last year.
  
• For the full year FY24, the gross SIP flows stood at ₹1,99,218 Crore while the net SIP flows stood at ₹87,973 Crore, resulting in a net to gross ratio of 44.16%. This is roughly at par with the trends in the net to gross SIP folios too.

Let us now turn to how the situation changed in the fiscal year FY25.

NET VERSUS GROSS SIP FLOWS – FY25

Let us now turn to the data of gross SIP flows and net SIP flows for the year FY25, extending from April 2024 to July 2024. We have shown the gross SIP flows (as reported by AMFI), net SIP flows as reported by mutual fund registrars and the net to gross SIP ratio, showing the stickiness of the SIPs or the lack of it. We have only 4 months data, so trends will be extrapolated for greater clarity.

Data Source: AMFI & Cafemutual

Here are some of the key takeaways from the gross to net SIP flow tabulation for the fi8st 4 months of fiscal year FY25.

• Gross SIP flows have been steadily and decisively progressing higher and it has been above ₹20,000 Crore in all the four months of FY25. The ratio of the gross SIP flows in the latest month of FY24 to the first month of FY24 stood 14.54% higher, while the figure of net SIP flows were relatively more erratic through the year.
  
• The net SIP to gross SIP ratio had touched a high of 44.14% in May 2024 and a low of 38.42% in July 2024. In 2 out of the 4 months, the net to gross SIP ratio was higher than the average, showing less volatility and skewness compared to previous years.
  
• For the four months of FY25, the gross SIP flows stood at ₹85,889 Crore while the net SIP flows stood at ₹35,431 Crore, resulting in a net to gross ratio of 41.25%. This is roughly at par with the trends in the net to gross SIP folios too.

FY25 has only 4 months of data, but that is good enough to extrapolate trends. One of the key trends we can decipher is that the net SIP to gross SIP ratio has been consistently falling from 53.78% in FY23 to 44.16% in FY24 to 41.25% in FY25.

WHY NET SIP RATIO IS FALLING – KEY REASONS

There are several reasons why the net SIP flows have been lagging the gross SIP flows. Here are some reasons and the ideal action plan.

• In the recent past, under pressure from SEBI, several funds have stopped accepting fresh SIPs and even SIP renewals on mid-cap and small cap funds with limited investment opportunities. In such cases, while the ongoing SIPs continue to get debited, the new SIPs and renewal of SIP are barred by the fund.
  
• People generally tend to be quite lax about SIP renewal dates and ensuring that the bank account is sufficient funded ahead of the SIP debit date. Most people want to try out the SIP and hence opt for a period of 1 year. Once this tenure is over, the investors have to write to the AMC to renew the SIP. However, that is not done in many cases,.
  
• Auto SIP cancellations are another reason. In the past, if the SIP was kept in abeyance for some time, then the discretion was of the fund whether to treat that as a cancelled SIP or not. However, under the new regulations of SEBI, if 3 consecutive SIP instalments are missed, then that SIP is cancelled. In addition, if 3 consecutive SIP cheques or SIP ECS mandates bounce, then the fund automatically is required to discontinue the SIP. In the past, there were varied practices on this count. Now SEBI has standardized SIP cancellations at 3 bounces for all SIPs and at 2 bounces for bi-monthly SIPs.
  
• In addition, the SIPs get cancelled due to factors like change in the objective of the scheme. In such cases, the fund holder has to give consent to shift. If consent is not given, the SIP is automatically cancelled. In the case of consolidation or merger of schemes, the SIPs are automatically cancelled.
  
• In addition, investors themselves choose not to renew SIPs due to a variety of reasons. There could be financial constraints for the investor, or they may be unhappy with the performance, loads or the service quality of the existing SIP Fund. One more reason is more rational. Many people design SIPs for medium term and long term goals. Once this goal is met, there is a logical choice to discontinue the SIPs.
  
• KYC is one more reason for cancellation of SIPs. For instance, today investors are required to renew their KYC at routine intervals. If this is not done, then SEBI automatically cancels the SIP. More often than not, investors don’t even realize that this shift has happened.

Let us finally look at if there are any resolutions to this SIP stoppage challenge?

HOW TO IMPROVE THE NET TO GROSS SIP FLOW RATIO?

A lot of the steps to improve the net to gross SIP ratio has to come from the investors. The SIP investors must take care of basic things like ensuring that their KYC is regularly updated so they can avoid negative surprises. Secondly, investors must make it a point to check their bank accounts ahead of the SIP date. This will avoid unnecessary cancellation of SIPs, which are terminated if there are 3 bounces in a row. On thing the individuals can do is to opt for the perpetual SIP, which is a good choice if you don’t want to remember these dates.

There is a lot that financial advisors can also bring to the table to improve the net to gross SIP ratio. Investors need to be educated about the role of SIP in attaining goals, especially medium term, and long term goals. SIPs being terminated on goal milestones is understandable. However, SIPs being discontinued to book profits is not a good idea as that is not the purpose of the SIP, anyways. This lesson on the need to persist was best explained during the pandemic. Those who panicked and discontinued their SIPs may have got some temporary cash, but it was the investors who persisted with the SIP through the pandemic volatility were the ones laughing all the way to the bank!