Rising redemptions keep net systematic investment plan inflows under check

Even as gross systematic investment plan, or SIP, inflows continue to scale new highs, the flows on a net basis have remained subdued this financial year owing to a surge in redemptions, shows mutual fund industry data.

The redemptions from SIP accounts have shown a consistent rise throughout the financial year FY24, scaling to Rs 9,750 crore in the month of July. In August, the outflows eased a bit to Rs 8,740 crore.

As a result, the average net SIP inflows in the first five months of FY24 stood at Rs 6,170 crore, down from an average of Rs 7,000 crore in FY23. The net SIP inflows are net of gross SIP inflows and redemptions from SIP accounts during a particular month.

Higher redemptions from SIP accounts are in line with the trend seen at the aggregate active equity fund level. The outflows from these schemes had scaled to a 30-month high of Rs 30,400 crore in July. The outflows in FY24 have largely been elevated owing to profit booking post a strong run-up in the equity market.

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As of August-end, the benchmark Nifty50 had logged gains in each of the past five months starting March and has risen almost 14 per cent during the period.

"After a tough January-March period of calendar 2023, the Indian stock markets have been on a relentless rise from April, with the broader market outperforming Nifty 50 and other frontline indices," said Gopal Kavalireddi, vice president - research at Fyers, an online trading and investment platform.

"Smart investors have taken their foot off the pedal, cashing in on their large gains of the last five months," he added.

MF distributors also attribute the outflows to profit taking. "We haven't seen a significant surge in redemptions by our clients. There has been some profit booking, largely because investors wanted to diversify to real estate," said senior MF distributor Nikhil Thakkar.

The past few months have seen the SIP registrations and discontinuations growing simultaneously. While registrations have gone up every month, rising from 2 million in April 2023 to 3.6 million in August, discontinuations have also surged from 1.3 million to 2 million in the same period.

The outflows have largely taken place from large-cap schemes — one of the largest categories on the equity side. Investors have redeemed a net of Rs 5,600 crore from these schemes in the first five months.

The analysis of net inflow data also shows the recent trend in lump-sum inflows. In August, there was a sharp surge in net lump-sum inflows into equity schemes. Investors made a net one-time investment of Rs 14,500 crore in August, likely nudged by a shift in equity market trend.

The market, which had been rising since the end of March 2023, lost some steam in August with the benchmark indices ending their five-month gaining streak. Both the National Stock Exchange Nifty50 and the S&P BSE Sensex declined by 2.5 per cent last month. However, the broader market continued the bull run with the Nifty Smallcap rising by 4.6 per cent and the Nifty Midcap closing 3.7 per cent higher. During the current market, the market has shown a V-shaped movement, rising nearly 4 per cent during the first half and giving up almost all the gains due to risk-off sentiment triggered by rising US bond yields and spiralling oil prices.