SIP flows create new high of ₹24,509 Crore in September 2024

AUGUST 2024 SIP FLOWS – 25K IS ROUND THE CORNER

The financial year FY25 has been special for SIPs. This is the first year when the SIP flows have average above ₹20,000 Crore in each of the six months. With the September 2024 SIP flows at a record high of ₹24,509 Crore, the 25K target is not too far off. FY25 has impressive average SIP flows of ₹22,321 Crore per month. In the last decade, it is not just the SIP flows that have grown, but even the SIP folios have grown in a big way. As late as 2024, the MF SIP folios stood at 3.95 Crore. A decade later, the total MF SIP folios stands at a whopping 21.05 Crore. Let us now look at the short term growth numbers for the MF SIP flows.

Going by the early numbers of gross SIP flows in FY25, the fiscal year promises to be another bumper with the average monthly SIP flows already 34% above the previous year average. SIP flows in September 2024 at ₹24,509 Crore was 4.1% higher than the sequential August 2024 SIP inflows. The month of September 2024 saw overall mutual fund AUM rising to ₹67.09 Crore, compared to ₹66.70 Trillion at the end of August 2024. Of course, the AUM accretion is a mix of inflows and price appreciation, but that only applies to equity based assets. For pure active debt funds, the growth has predominantly come from flows. The new fund offerings at a robust ₹14,575 Crore also helped in a slew of new SIP creations; since a lot of investors these days prefer to combine NFO investments with SIPs.

GROSS VERSUS NET ACCRETION TO SIP FOLIOS

The month of September 2024 saw gross SIP inflows above the ₹20,000 Crore mark for the sixth month in a row; despite the global uncertainties. Interestingly, the gross SIP flows have been progressively higher each month since June 2023 (a total of 15 months in a row). There were apprehensions that higher capital gains tax on equity mutual funds would dent SIP flows; but that has hardly been the case, with SIP flows only intensifying. The gross accretion to folios at 66.39 Lakhs in September 2024 was higher than 63.94 Lakhs in August 2024, but lower than the record July 2024 figure of 72.62 Lakhs. However, the net accretion in SIP folios in September 2024 fell to 26.08 Lakhs, compared to 27.40 lakhs in August 2024; and sharply lower than the all-time record net SIP folio accretion of 35.29 Lakhs in July 2024.

However, the month of September 2024 also saw a spike in SIP closures as is evident from the SIP closure ratio spike in the month. The SIP AUM in September 2024 has touched a new high of ₹13.82 Trillion compared to ₹13.39 Trillion at the close of August 2024. Between FY22 and FY23, the SIP AUM grew by just about 18.55%, while the SIP AUM growth between FY23 and FY24 was an impressive 56.84%. That can be attributed to the rally in the index, and that trend appears to be continuing in FY25 also. In fact, the SIP AUM as of the close of September 2024 is already 28.93% higher than the SIP AUM as of the close of FY24. One can logically expect FY25 to be another record in terms of SIP AUM accretion in India.

SIPS DETOUR – CAN SIPS MEET FANTASTIC TARGETS?

The other day, an investor was keen to know if he could start today and accumulate ₹1 Crore corpus in 5 years. The best I could do was to share the philosophical quote by Archimedes, “Given me a place to stand and a long lever, and I can move the earth.” What it means is that what you can achieve largely depends on what you are willing to commit as an investor. However, this is also something one must look at as a very rational question. It is fine to say that SIPs are successful only if you start early and persist for 25 to 30 years.

In the real world, that may not always be possible. It would, therefore, be instructive to figure out how to create a corpus of ₹1 crore over a period of 10 years, instead of 5 years. Now there are two ways to approach this challenge. Firstly, you can decide a SIP amount and persist with it for 10 years. That is the plain vanilla approach. The other approach is to start relatively smaller and then grow your SIP contribution each year. Here are your two options to achieve your target of ₹1 Crore in 10 years.

• Start with a SIP of ₹44,000 per month and continue the SIP for a period of 10 years. We assume a conservative annualized return of 12% net of taxes. Just input this data into any SIP calculator and you can figure that the amount would grow to a little over ₹1 Crore at the end of 10 years.
• Let us also look at a stepped-up SIP, wherein you start relatively smaller and grow the SIP amount each year. In case you are looking to increase your SIP contributions by 5% each year, you can start with monthly SIP of ₹36,500 and scale it up 5% each year to touch a corpus of ₹1 Crore in 10 years. Alternatively, you can start still smaller SIP of ₹29,500 in the first year and scale it up by 10% each year. That would also lead you to a corpus of ₹1 Crore after 10 years.

The moral of the story is that with the power of SIPs; you can not only envisage a large number, but even plan for it.

SEPTEMBER 2024 SIP FLOWS AT RECORD ₹24,509 CRORE

Since June 2023, the SIP flows have created new record high SIP collections for 16 months in a row. While the degree of accretion may have varied, each month has seen higher SIP inflows relative to the previous month. This kind of decisive positive trend has never been seen in the last 8 years, and it is a testimony to the fact that SIP flows are here to stay. If you compare the September 2024 SIP flow with the September 2023 SIP flow, it is higher by 52.78% yoy. The good news is that, unlike the month of May 2024, the SIP closures have not been alarming in subsequent months; although the ratio continues to be fairly high. Here is the gross monthly SIP flow picture.

Data Source: AMFI

Gross SIP flows into mutual funds have now been above the ₹20,000 Crore mark for the fifth month in a row with the average of FY25 at ₹22,321 Crore. Apart from the rise in the Gen-X and Gen-Z customers with rising purchasing power and a long term approach; a robust NFO markets has also helped the proliferation of SIPs to a large extent. Clearly, Indian retail investor are gradually getting sold on to the idea of systematic investment planning, with its elegant rupee cost averaging advantage, its simplicity, and its amazing effectiveness in creating wealth for individuals, through the cyclical vagaries of the Indian financial markets.

SIP FLOWS – EIGHT YEAR ITCH GETS MORE INTERESTING

The table below captures month-wise SIP flows into mutual funds since April 2016. Each milestone of an additional ₹1,000 Crore has been highlighted in bold.

Data Source: AMFI

Here are some key takeaways from the 8-year SIP flow data.

1. The previous fiscal year of FY24 was the best full year in terms of milestones, with 5 milestone months. This compares to 3 milestones in FY22 and in FY18. In FY25, we already have 4 milestones in 6 months. The chances of bettering FY24 is very high.
2. What was the average gap between two milestones? A quick ballpark figure is 3-6 months, although is just 2 months in FY24 and less than 2 months in FY25. The average September 2024 SIP flows are about 6.63X times the September 2016 SIP flows.
3. The longest wait between two milestones of 27 months was between December 2018 and March 2021; but that was exceptional due to the pandemic. Otherwise, the SIP flows have been growing at a robust pace all through.

With average SIP flows at ₹22,321 Crore in FY25, a logical figure to target by December 2024 would ₹25,000 Crore SIP flows per month. That is just a stone’s throw away.

OUR QUICK READING OF THE SIP TICKET STORY?

If FY23 was great for SIP flows, FY24 was even better and FY25 has started with a bang and promises to be much bigger. At ₹1,99,219 Crore, FY24 was the best full year in SIP collections. SIP flows in FY24 were 27.73% higher than FY23; 59.93% higher than FY22 and 107.35% higher than FY21. If you annualize 6-month data of FY25, the current year is 31.81% better than FY24. It could even get a lot better.

Data Source: AMFI
If you look back at the yoy growth in the average monthly SIP ticket (AMST), the growth has been robust each year, except for the 2 years of the pandemic, which is understandable. There is a positive side to it. The so-called lost years laid the foundations for frenetic future growth in SIP flows; and we are still enjoying the spillover effects of that.

SIP FOLIOS IN SEPTEMBER 2024 – RETAIL INTENSITY STILL STRONG

The gross accretion to SIP folios continue to remain robust in September 2024. In FY25, April 2024 saw a robust 63.65 Lakh new SIPs registered; but May 2024 fell to 49.74 Lakhs, although June bounced back to 55.13 Lakhs. July saw record gross SIP folio addition of 72.62 Lakhs, while SIP folio additions fell to 63.93 Lakhs in August 2024. In September 2024, the gross SIP additions bounced back to 66.39 Lakhs. The outstanding SIP folios increased from 961.36 Lakhs in August 2024 to 987.44 Lakhs in September 2024; an effective monthly net accretion of 26.08 Lakh SIP folios or 2.71%. The SIP stoppage ratio had tapered in July, but has again bounced in August and further in September 2024. SIP folios at 987.44 Lakhs are closing in on the 10 Crore SIP folios mark. The SIP folios today are about is 46.91% of total mutual fund folios as of the close of September 2024.

What about SIP AUMs on a yoy basis? Between August 2024 and September 2024, the SIP AUM increased from ₹13,38,945 Crore to ₹13,81,704 Crore; a surge of 3.19% on sequential basis. This has been triggered by higher flows, although the index levels have also moved up in the month of September 2024. That is one of the reasons, SIP intensity is better captured by the SIP folios than by SIP AUM.

SIP STOPPAGE RATIO – THINGS GET TIGHTER IN SEPTEMBER 2024

AMFI reports monthly SIP flows on a gross basis. That gap is explained by the SIP stoppage ratio; which is the ratio of SIP accounts discontinued to new SIP accounts opened. Lower the SIP Stoppage Ratio, the better; as it shows stickiness in SIP accounts. Between April 2024 and May 2024, there was a sharp spike in the SIP stoppage ratio. However, that looked like a one-off amidst heightened election-related uncertainty. However, August and September 2024 have seen the SIP stoppage ratio progressively higher.

Data Source: AMFI (# – 6-months data)

After closing FY24 with SIP stoppage ratio of 52.41%, April was flat at 52.24%, but May was a shocker at 88.38%. After a subdued July; the SIP stoppage ratio spiked to 57.14% in August and further to 60.72% in September 2024. As a result, the average SIP stoppage ratio for the first half of FY25 stands elevated at 60.23%.

FY25 ANNUALIZED SIP STOPPAGE RATIO NEAR PANDEMIC HIGHS

Here is the SIP stoppage ratio in last 5 completed fiscal years and for the 6 months of FY25.

Data Source: AMFI (# 6-months data)

The SIP stoppage ratio for FY24 at 52.41% was lower than FY23 and the pandemic years, but sharply higher than 41.74% in FY22. Fiscal year FY25 saw a spike in SIP stoppage ratio in May 2024, but since July, the ration has been worsening. As a result, the cumulative SIP stoppage ratio for FY25 already stands at 60.23%; which is around the pandemic highs. Investors seem to be getting tentative at higher levels of the market.

What is the ideal SIP stoppage ratio? It would be comfortable as long as the SIP stoppage ratio stays between 40% and 45%; although that is tougher as indices scale higher. The big surge in GDP growth and consumption in India, along with a steady rise in per capita income levels, will be a boost for financialization of savings. That is best captured by SIP folios and SIP flows. However, for the SIP narrative to be effective, it is essential to keep the SIP stoppage ratio in check. That is where mutual funds are faltering currently!