Flows through the SIP route could moderate going ahead: Experts

Illustration: Binay Sinha
The mutual fund industry has seen moderation in flows, but investments through the systematic investment plans (SIPs) route continue to remain intact.

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

Also, the SIP contribution in July was same as the previous month, which saw the highest-ever tally.

Experts say flows through the SIP route could also moderate going ahead.

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

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

Balasubramanian said that today SIP has become a brand in itself as both manufacturers and distributors are constantly explaining benefits of disciplined investing and dissuading retail investors from trying to time the markets.

In July, net inflow into equity mutual fund schemes, including tax-saving and arbitrage schemes, rose 28 per cent to Rs 106 billion. The inflow, however, was 27 per cent below the past 12-month average of Rs 145 billion.

Market experts say most of the recent slowdown in equity inflows has largely been due to lumpsum money getting pulled back. They add as lumpsum flows are cyclical, volatility is expected in the run-up to the election season.

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

Analysts say that rising contribution of SIPs is important as it can help the industry offset cyclicality risks. As per Amfi data, 51 per cent of 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 AUM and has grown at over 60 per cent year-on-year. We expect SIP to be on a structural uptrend and SIP book to grow at 10 per cent CAGR (Compound Annual Growth Rate) 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.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel