When mutual flow data for the month of Sep-21 was announced by AFMI, what stood out was SIP flows. For the first time, monthly flows crossed Rs.10,000 crore. Now comes the bigger challenge!
SIPs cross a landmark
Over the last few months, the total SIP flows had been hovering above the Rs.9,500 crore mark. In Sep-21, flows scaled to Rs.10,351 crore. This is the first time that total SIP flows crossed this mark and hopefully should sustain on a regular basis. In the current fiscal, the SIP flows have averaged at much higher levels than previous years. That is a sign that SIP as an investment idea is here to stay. What does this really say about mutual fund investing habits?
Retail appetite is strong
While the broad break-up of the SIPs is normally not available, it is safe to assume that the SIP money is largely retail money and it is retail money that is flowing into equity funds. In fact, if you look at the total flows into equity funds and compare it with the SIP flows, the message is that most of the major redemptions are happening from bulk investments while SIPs have a tendency to stay put for much longer. That is largely because, scores of millennials have been coming through the SIP route and they are here for the long haul. These SIP flows boosted equity fund AUM in a big way in last few years.
SIP folios need to expand
While SIP flows on a monthly basis is a good barometer, the more important metrics pertains to the SIP folios and the SIP AUM. SIP folios have shown tremendous traction and has touched 4.49 crore folios. It looks all set to touch 5 crore by end of FY22. The real level that will bring a big momentum for the mutual fund SIPs is around 100 million SIPs which should happen in next few years. The other factor is the SIP AUM, which currently stands at Rs.5.45 trillion and that needs to move closer to Rs.10 trillion with growth in overall AUM. That would be big push for the SIP flows and also for sustainable mutual fund AUM.
Avoiding investor ennui
The biggest challenge, though, would be to avoid the risk of investor ennui. For example, between 2009 and 2014, the equity funds saw net outflows quarter after quarter. The main reason was the investor ennui that set in after the global financial crisis. That had led to a prolonged slowdown in mutual fund flows. It was only after 2014 that MF AUM started expanding. The last seven years have seen unprecedented bull markets with little halt to the rally. Even after the pandemic, the recovery was quick and surprising. The challenge is to prevent investor boredom at elevated levels of the indices. If that happens, the SIP story could really face its first real big risk and we cannot repeat it!
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