Mutual Funds: SIP inflows rising consistently; is this trend sustainable?
During the period April-November 2023, SIP contributions stood at ₹1,24,313 crore, almost 24 percent higher as compared to ₹1,00,581 crore recorded during April-November 2022 period.
The Indian mutual fund industry has been witnessing a remarkable surge in interest among investors in recent times with the Assets Under Management (AUM) growing by nearly 21 percent to touch ₹49.05 lakh crore as on November 30, 2023, up from ₹40.38 lakh crore as on November 30, 2022. At the current levels, the industry is almost halfway through its targeted aim of achieving an AUM of ₹100 lakh crore over the next few years.
A significant point to note in this growth story is that the total number of unique investors in mutual funds crossed the four-crore mark, which clearly indicates the growing interest among retail investors for investing in equities through the mutual fund route. More interestingly, nearly one-fifth (19 percent) of the industry’s total AUM is backed by inflows through the SIP (Systematic Investment Plan) route, which is considered to be convenient investment option particularly for retail investors, and the share is growing at a fast pace.
The burgeoning middle class and rising financial literacy is prompting more and more people to resort to financial planning so as to accrue savings. The outlook is positive from all aspects including growth and employment. As indicated by the Reserve Bank of India, the country’s economy is set to grow. Employment generation and government spending is high. Financial intermediaries are expanding into smaller towns and cities aiding higher financial literacy among young population. This, coupled with the rising aspiration will help spur further growth of SIPs.
The various development efforts undertaken by the government are yielding result with localisation and growth happening all across beyond metro cities. There is an exponential growth particularly in the Tier II, Tier III towns and the financial network of various banks, NBFCs, wealth mangers, brokerage house are expected to expand further thereby aiding the growth in SIPs moving forward.
According to official data, there are currently 7.44 crore or 74.4 million SIP (Systematic Investment Plan) accounts for investing into various mutual fund schemes. SIP contribution increased by nearly 25 percent at around ₹1.56 lakh crore in 2022-23, as against ₹1.25 lakh crore in 2021-22. During the period April-November 2023, SIP contributions stood at ₹1,24,313 crore, almost 24 percent higher as compared to ₹1,00,581 crore recorded during April-November 2022 period. This clearly indicates that the SIP contribution during 2023-24 is likely to be significantly higher than FY-23.
Ease of investing
Systematic Investment Plan or SIP as it is commonly known, is basically an investment plan offered by mutual funds, which allows an investor to invest a fixed amount in a mutual fund scheme periodically at fixed intervals. The SIP amount can start from as low as ₹500 a month, making it very accessible and affordable to every class of investor. This channel of investing has been gaining traction among investors as it helps them to invest in a disciplined manner without worrying about market volatility and the need to time the market before deciding to invest.
Also Read: The year when mutual funds marched ahead
In terms of contribution, the share of SIPs to the total AUM of the industry stood at around 17 percent in 2022-23 and at ₹6.83 lakh crore, as against ₹5.76 lakh crore during 2021-22. Interestingly, the share of SIP AUM has been consistently growing and stood at around ₹9.31 lakh crore during April-November 2023 period.
The steady rise in inflows into the Indian mutual fund industry can be attributed to gains in stock prices on the back of positive sentiment around the country’s macroeconomic fundamentals. Equity-oriented schemes have been witnessing a strong uptick in demand backed by a sense of optimism around India’s economic growth prospects despite the ongoing geo-political tensions. Evolving regulatory landscape and pro-investor measures have also contributed to the growth in the sector.
Is the trend sustainable?
According to data put out by the Association of Mutual Funds in India (AMFI), while the number of new SIPs registered during the April-November 2023 period stood at around 2.43 crore, the number of SIPs discontinued or those with tenure completed was at 1.35 crore.
The rise in number of discontinued/tenure completed SIPs can be attributed to several reasons including an investors’ need for funds leading to stoppage of SIPs temporarily; not renewing their SIPs post the tenure ended or purely because of the investors’ perception of the market being overvalued leading to him/her considering alternative avenues for investments. It can also be attributed to profit booking by investors following a strong run-up in the equity market.
However, it is evident that a large number of investors are entering into the market even as the benchmark indices have nearly trebled since their Covid lows nearly three years back. In November alone, the mutual fund industry witnessed record high inflows of close to ₹17,073 crore through SIP route and new SIPs registered stood at 30.80 lakh. This is a sharp increase from 19.56 lakh in April 2023.
The fact that Indian equity market has continued to perform well amid global uncertainties, backed by the country’s underlying strong fundamentals is certainly a big draw for investors, who understand and appreciate the importance of adopting a disciplined approach towards investing through SIP channel and this is likely to augur well for the industry in the medium to long term.
Ashwini Kumar is Head - Market Data, ICRA Analytics
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First Published:29 Dec 2023, 11:30 AM IST
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