SIP inflows intact, but may moderate in future

Investments through the systematic investment plans (SIPs) route continue to remain unabated at a time when even the mutual fund industry has been witnessing moderation in flows.

Data available with the Association of Mutual Funds of India (Amfi) shows that SIP contribution in July stood at ~75 billion — 21 per cent higher than the past 12-month average of ~62 billion.

Interestingly, SIP contribution in July was same as the previous month, when the tally was the highest-ever.

Experts observe that flows through SIPs, too, could moderate in the near future.

“The industry has seen a strong growth in SIPs in recent years owing to increased investor awareness. However, it would be difficult to sustain these high growth rates,” said A Balasubramanian, Amfi chairman and chief executive officer of Aditya Birla Sun Life asset management company (AMC).

In the June quarter, the average SIP contribution stood at ~72 billion, 58 per cent higher compared to the same quarter last year.

Balasubramanian added that SIPs had become a brand by itself as manufacturers and distributors were constantly explaining the benefits of disciplined investing, dissuading retail investors from trying to time the markets.

In July, the net inflow into equity mutual fund schemes, including tax-saving and arbitrage schemes, rose 28 per cent to ~106 billion. The figure, however, was 27 per cent below the past 12-month average of ~145 billion. Market experts observe that most of the recent slowdown in equity inflows has largely been due to lump sum money getting pulled back. These lump sum flows are cyclical, and volatility is expected in the run-up to the election season, added experts.

Currently, the MF industry has about 23.3 million SIP accounts. In the current fiscal year, the industry has added 992,000 SIP accounts each month, on an average, with average ticket size of ~3,250.

Analysts say the rising contribution of SIPs is important as it can help the industry offset cyclical risks. According to Amfi data, 51 per cent of the industry's equity assets are not held for more than a year.

"While we do not rule out cyclicality in flows, especially into equities, we think MFs have now become a mainstream investment vehicle. The SIP book now forms 9-10 per cent of equity assets under management (AUM), and has grown at over 60 per cent yearon-year. We expect SIPs to be on a structural uptrend and SIP book to grow at 10 per cent compound annual growth rate (CAGR) over FY18-25," analysts at Nomura said in a recent note. Balasubramanian said SIP flows could grow at a 20-23 per cent CAGR over the next three years.