Direct plan SIPs bounce back in 2023 on the equity market euphoria

Direct plan distributors added 12.4 million SIP accounts in 2023, 39% more than in 2022

Direct plan mutual fund (MF) platforms re-entered the high growth path in 2023 after a tepid 2022, propelled by the sharp rally in the equity market. In calendar year (CY) 2023, direct plans added 12.4 million systematic investment plan (SIP) accounts, 39 per cent higher than the additions seen in the previous year. The sharp surge comes after the 2022 blip when registrations grew only 4.5 per cent and even lagged behind the traditional regular plans.

The pace of addition of new investors and SIP registrations, as seen in recent years, is linked to the performance of the equity market. In the case of direct plan SIPs, the correlation is even higher.

The Nifty 50 went up over 19 per cent in 2023 compared to just 4.3 per cent growth in the previous year. The direct plan SIP registrations had grown only 4.5 per cent in 2022 even as registrations in the regular plan surged 19 per cent, shows data from the Association of Mutual Funds in India (Amfi).

Mutual fund schemes come in two variants — regular and direct. The only difference is the cost. Regular plans are on the expensive side as they have a commission component in the expenses they charge investors. Regular plans are mostly sold by individual distributors and banks, while direct plans are primarily sold by online investment platforms like Groww and Zerodha.

"In 2023, we have doubled our SIP accounts. The SIP book now stands at 3.2 million compared to 1.5 million at the end of 2022. The bullish market was an enabling factor but it's also due to growing preference for direct plans considering the low cost and ease of investment and awareness about fintech platforms," said Neelesh Verma, Product Head & AVP, Coin by Zerodha.

Direct plans, which were introduced in 2023, have been slowly growing its share in the total MF assets under management (AUM). The growth has been more pronounced in the post-Covid period. Except for 2022, SIP registrations in direct plans have seen a higher growth every year compared to regular plans. The registrations went up 115 per cent in 2021 and 505 per cent in 2020, albeit at a low base.

The rally in the equity market helped the MF industry add a net of 15 million SIP accounts in 2023, 24 per cent higher than the 2022 tally of 12.2 million.

"Clearly, the SIP culture has been growing in the country. People have realised that this is the right way of investing in equities. Investment flow is generally high in a rising market scenario. It is good that this time the majority of the money is coming through SIPs," said Neil Parikh, Chairman and CEO, PPFAS Mutual Fund.

The investor interest in 2023 was concentrated in the midcap and smallcap funds as this segment of the market outperformed largecaps by a wide margin.