SIPs lose steam in the December quarter; investors wait & watch

The growth of systematic investment plans, or SIPs, has been the slowest in the December quarter. 

An analysis of the data released by the Association of Mutual Funds in India (Amfi) shows the average SIP contribution in September-December grew at its slowest pace of 4.6 per cent on a quarterly basis. 

“One-year SIP returns have been negative, which may start weighing on SIP flows. In the last two years, a lot of new investors started SIPs as strong trailing returns piqued their interest. However, their experience may have fallen short of their expectations,” said Swarup Mohanty, chief executive officer of Mirae AMC. 

While in year-on-year terms growth stood at a robust 35 per cent, it was still the lowest compared to the MF industry’s past growth rates. 

However, analysts believe there is no reason to worry yet.  “It is little too early to draw a long-term trend. Growth may have eased because of investors waiting for market volatility to abate before making fresh commitments. Overall, the rise in flows through SIPs has been a healthy sign for the industry,” said Kaustubh Belapurkar, director (fund research), Morningstar Investment.

Analysts see the rising contribution of SIPs as a big positive for the industry as it somewhat offsets the cyclicality risks the MF industry can face during market panic.

“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 a compound annual growth rate of 10 per cent over FY18-25,” analysts at Nomura pointed out in a recent note.

Mohanty said: “The SIP contribution of Rs 8,000 crore in December is a big number for the industry. It is a big positive that flows are seeing growth and not de-growth. In the past, there have been instances of de-growth during such market environment.”  

Market experts say most of the slowdown in equity inflows has largely been due to lump sum money being pulled out. They add the flows are likely to remain volatile in the run-up to the elections, given their cyclical nature. In such a situation, a healthy SIP book can be a strong counterweight for the sector. 

In December, equity inflows (equity schemes and the equity-linked savings scheme) fell to a 22-month low of Rs 6,606 crore. Compared to the previous month, the flows were down 21 per cent and 42 per cent lower than the past 12-month average.