Why July 2022 SIP flows remained steady amidst volatile markets?

Systematic Investment Plans (SIPs) have become the virtual lifeline for flows into mutual funds, especially equity funds. In most months, the lump-sum flows have been negative while the SIP flows have been robust and compensated for the same. In FY22, Indian mutual funds saw robust mutual fund flows to the tune of Rs124,566 crore and FY23 looks all set to beat that. The graph below captures the monthly SIP flows over the last one year.

Data Source: AMFI

What can we infer from the monthly SIP flows above? Over the last 1 year, the SIP flows have steadily grown. However, what is more impressive is the fact that in the last few months, the SIP flows have been stable despite global headwinds like recession fears, central bank hawkishness and persistent inflation. April 2022 saw tapering of SIP flows to Rs11,863 crore but bounced back to Rs12,286 crore in May 2022. In June 2022, SIP flows were stable at Rs12,276 crore and at Rs12,140 crore in July 2022; almost at stable levels. 

Why are investors gravitating towards SIPs despite uncertain markets?

If there is one factor that has catalysed this aggressive demand for SIPs, it would be the experience of the pandemic and after. Here is what trigger the shift to SIPs.

    a) Most investors learnt their lessons from the experience of 2020, especially during and after the pandemic. At the peak of the COVID scare, most investors had decided it was prudent to exit their SIPs and wait in the side lines. However, it turned out that the smartest investors were those who held on and persisted with their SIPs all through the pandemic period. They were the investors who really made the best of the fall. 

    b) SIPs have a logical ring to it. Let me explain. We all love the idea of investing a small amount regularly and forgetting about it. Most investors don’t have the time to monitor these investments. Remember, there is an automatic fit between the income flows and SIP outflows. Each month, on a particular date, you commit to invest a small amount of money into SIPs. Apart from discipline, SIPs are easy to understand and cool to execute.

    c) Nobody, not even the best of traders and investors, have managed to consistently get their timing of the markets correct. SIPs overcome the problem of timing and saves the investors the hassles of timing the market. People have learnt that timing the market is a zero-sum game. A few bad days can just wipe out all your efforts. A smarter way is, something like SIPs, which adopt an agnostic approach to investing.

    d) There is a vast difference between abstract concepts and actual data. In the case of SIPs, you can use actual data of past NAVs and simulate how you would have done in a SIP, versus a lumpsum investment. If you run a SIP through 2 or 3 cycles, the experience is that you would end up better off as rupee cost averaging works in your favour. 

That is what is gravitating investors towards SIPs, even in these volatile markets. But let us pause for a moment. Even if SIPs are growing, are investors numbers growing?

Look at SIP ticket and SIP Folios

There is an interesting way to gauge if SIPs are actually reaching out to more people. The success of SIPs is not just about the rupee flows but how many investors are getting in and are people investing more on an average through SIPs. There are 2 ways to do this.

    a) The first way to answer this question is through the average ticket size of the SIP. How has it evolved over the last few years? The average monthly SIP ticket (AMST) has witnessed a steady uptrend in the last 6 years. The SIP ticket was Rs3,660 crore in FY17, Rs5,600 crore in FY18 and Rs7,725 crore in FY19. However, in FY20 the SIP ticket size improved to  Rs8,340 crore, before stagnating at Rs.8,007 crore in FY21 due to COVID. In FY22, the average SIP size was Rs10,381 crore and in FY23, it is above Rs12,100 crore.

    b) The second way to look at the data is via SIP folios. The number of SIP folios (individual accounts unique to an AMC) increased from 554.89 lakhs in June 2022 to 561.94 lakhs in July 2022. That is net accretion of 7.05 lakh SIP folios. More importantly, this trend has been consistently higher over the last 2 years. 

To sum it up, SIPs have grown on their own merits, but more importantly investors are starting to see the merits of SIPs. And rightly so!