SIP accounts surge by 90% in Fiscal year 2021-22

Systematic investment plans of mutual funds, or SIPs as they are popularly called, have been drivers of retail flows into equity and non-equity funds. To gauge the extent of retail participation in the mutual fund segment, a good proxy is the SIP registrations. The number of registrations for new systematic investment plans (SIP) in mutual fund schemes were up by almost 90% at 2.66 crore in the financial year ended March 2022. That is a sharp spike and was highlighted by a recent report put out by IDFC Mutual Fund.

SIPs are about regular investing. You decided on a date and then allocate a fixed sum and the investment is on auto mode from that point. The report of IDFC Mutual Fund shows that retail investors trust small regular investments more than lump-sum investments where timing is a lot more critical. More than the SIP numbers, the SIP retention ratio improved from 39% in FY21 to 58% in FY22. SIP retention is the ratio of SIPs that have been discontinued in a certain period of time to the number of SIPs that have been opened.

To explain this point further, a total of 1.41 crore SIP accounts were opened in FY2020-21 and a total of 0.86 crore accounts ceased or matured. This translates into a SIP retention ratio of just about 58%. On the other hand, in the financial year 2021-22, a total of 2.66 crore fresh accounts were opened and 1.11 crore SIP accounts ceased or matured. That translates into a SIP retention ratio of 39%. Lower the SIP closure, the better it is and that ratio has fallen sharply in FY22.

On an average, the SIP book (which is the average of SIP flows on a monthly basis) increased from Rs9,000 crore in March 2021 to over Rs12,300 crore in the month of March 2022.That is a very sharp spike of 34% on a yoy basis. While the SIP book took a long time to cross the Rs10,000 crore mark, the subsequent growth has been really rapid. Investor preference for SIPs has been a function of Indian markets outperforming other markets as well as equity being the only asset class giving sustained positive returns post inflation. 

Finally, a quick look at the number of SIP accounts. The total number of SIP accounts stood at just about 3 crore in April 2020 but has since spiked to Rs5 crore in February 2022 and further to 5.50 crore by July 2022. Nearly 25% or one fourth of the gross equity fund sales came through the SIP route only. One more point to note is that hybrids and passive funds have grown rapidly in the last 2 years and today they account for nearly 28% of the total year end AUM. Hopefully, these trends should sustain in the months to come too.