At ₹15,245 crore, the humble systematic investment plans (SIPs) of mutual funds may have recorded their best month ever in July (latest available data). But dig a bit, and you find that even as new registrations are at record highs, so are discontinued instalments; Also, the average SIP ticket size remains low.
As for equity funds, remove SIPs and NFO flows out of the equation, the net inflow (that is, inflows minus redemptions) is actually negative — that is, outflows exceed inflows.
Here’s more on what lies beneath.
Surging SIP AUMs
Investors taking the SIP route are pouring money into MFs. Assets via the SIP route totalled ₹8.32-lakh crore by July 2023 — a 36.6 per cent increase over July 2022. SIPs now account for 26.7 per cent of the total AUM of equity funds, up from 24.9 per cent in July 2022.
A key point to note is how important SIPs have become to fund houses. In July 2023, the net equity fund inflows (that is, inflows minus redemptions) were ₹7,909 crore. But take away SIP and NFO inflows, the net equity fund inflows turn negative, that is, outflows of ₹10,645 crore. And this phenomenon has continued for four months running from April. This indicates a combination of factors such as lumpsum investments being less preferred and of investors exiting equity funds steadily.
Even as new SIPs registered have risen sharply by nearly 90 per cent YoY to a record 33.06 lakh in July, discontinued SIP accounts zoomed 72.6 per cent YoY to 17.9 lakh that month.
One reason may be that retail investors are closing accounts or stopping SIPs due to volatility, inability to gauge market movements, or booking profits early without directing their investments to specific goals.
Two, some investors may have stopped SIPs to try investing in stocks directly, with the more adventuresome dabbling in futures and options. Three, some may have taken the DIY route and gone to direct plans, thus discontinuing their regular mutual fund options. Anyway, only 51.4 per cent of investors stay put in equity funds for more than 24 months, according to AMFI data.
Another finding is that the average ticket size per SIP account is still low at ₹2,240. For perspective, in December 2017, the average size of monthly investment was ₹3,313. Thus, new investors are coming in with smaller investments.
While investors opening new accounts in droves is something to cheer about, goal orientation, staying put for the long term, not churning the portfolio frequently are some areas in which MFDs and RIAs can help considerably if investors do not have the understanding or the time to do so themselves.