Mutual funds’ Systematic Investment Program (SIP) stood at Rs 15,245 crore, probably recording its best month ever in July (latest available data). But dig a little deeper, and you’ll see that while new registrations are at an all-time high, stalled installments are also at an all-time high; moreover, the average SIP bill size remains low.
As for equity funds, netting out SIP and NFO flows, net inflows (i.e. inflows minus redemptions) are actually negative – i.e. outflows exceed inflows.
Here’s more on that below.
SIP assets under management surge
Investors taking the SIP route are injecting funds into MF. By July 2023, total assets through the SIP route reached Rs 8.32 billion, up 36.6% from July 2022. SIPs now account for 26.7% of equity funds’ total assets under management, up from 24.9% in July 2022.
A key point to note is how important SIP has become for subsidizing housing. Net inflows (i.e. inflows minus redemptions) to equity funds in July 2023 were Rs 7,909 crore. But excluding SIP and NFO inflows, net inflows into equity funds turned negative with outflows of Rs 10,645 crore. And this phenomenon has been going on for four months since April. This points to a combination of factors such as the falling out of favor of one-time investments and the steady exit of investors from equity funds.
While newly registered SIP accounts surged nearly 90% yoy to a record 3.306 million in July, terminated SIP accounts jumped 72.6% yoy to 1.79 million during the month.
One of the reasons could be retail investors closing accounts or stopping SIPs due to volatility, inability to gauge market movements, or booking profits in advance without directing investments towards specific goals.
read: Investors ‘buy the dip’ as stock inflows hit 9-month high
Second, some investors may have discontinued SIPs and instead tried investing directly in stocks, and dabbled more adventurously in futures and options. Third, some people may have taken the DIY route and taken a direct plan, thereby discontinuing their regular mutual fund choices. Regardless, according to AMFI, only 51.4% of investors hold equity funds for more than 24 months.
read:Gross monthly inflow through SIP may reach Rs 18,000 by end of FY24
Another finding was that the average bill size per SIP account remained low at Rs 2,240. In comparison, in December 2017, the average monthly investment size was Rs 3,313. Therefore, the investment size of new investors is smaller.
While investors opening new accounts in droves is something to cheer about, MFDs and RIAs can be a great way to go if investors don’t understand or don’t have the time to learn about goal orientation, long-term holding, and infrequent portfolio changes. These areas help a lot. They do it themselves.