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Last Updated : Sep 10, 2019 04:47 PM IST | Source: Moneycontrol.com

SIP folios, inflows falling: Is it time for MFs to ring the alarm bells?

In August, SIP inflows were Rs 8,230 crore in August, slightly down from Rs 8,324 crore in July.

Himadri Buch @himadribuch
Representative image
Representative image

The mutual fund industry, which largely depends on systematic investment plans or SIPs for equity fund inflows, has been indicating a falling trend in the number of new folios additions.

According to data provided by Association of Mutual Funds in India, mutual fund industry added 3 lakh folios in August as against addition of 5 lakh folios in July.

Inflows from SIPs too saw a marginal fall. In August, SIP inflows were Rs 8,230 crore in August, slightly down from Rs 8,324 crore in July. The total amount collected through SIPs in June stood at Rs 8,122.13 crore.

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Generally, the rising clout of SIP AUM is a standout feature and is key to the success story of the mutual fund industry as the flows are stickier and improve the persistency of equity AUMs.

However, SIP AUM came as a silver lining. The asset under management of SIPs rose to Rs 2.81 lakh crore in August from Rs 2.78 lakh crore in July.

MFs Not Worried

"Fall in folios is just an aberration due to equity market volatility. If the current monthly run rate of SIP at Rs 8,000 crore is maintained, the MF industry is expected to see equity inflows of nearly Rs 1,00,000 crore in 2019-20, which is sizeable by any standard and this will also led to rise in folios eventually,” said a chief executive officer from a mid-sized mutual fund.

Amid intermittent bouts of volatility, Sensex fell 0.4 percent in August largely on the back proposed FPI surcharge that led to FPIs pulling out a huge chunk of investments from the domestic equity market. Further, weak auto sales also added to the pain.

The Budget proposal to hike surcharge on FPIs had spooked foreign investors, who withdrew more than $3.4 billion (Rs 24,500 crore) from domestic equities in July and August. The massive capital outflows also put pressure on the rupee, which slumped to 72-level against the US dollar in August.

On August 23, Finance Minister Nirmala Sitharaman announced the withdrawal of enhanced surcharge on short-term and long-term capital gains earned by foreign portfolio investors (FPIs) and domestic investors soothing market sentiment.

NS Venkatesh, Chief Executive Officer, AMFI, is also bullish on inflows through SIPs. On the outlook for September 2019, Venkatesh said: "The fall in the monthly collection is marginal. We believe that investors will continue to invest in mutual funds schemes through SIP based on their goals. Despite the market volatility, the SIP numbers continue to remain stable."

SIPs are investment plans offered by MFs that allow retail investors to invest a fixed amount in a scheme at fixed periodic intervals, say once a month instead of making a lump-sum investment.

The SIP instalment amount could be as small as Rs 500 per month. SIP is similar to a recurring deposit where you deposit a small/fixed amount each month.

SIP is a very convenient method of investing in MFs. By issuing standing instructions to your bank to debit your account every month, one can avoid the hassle of having to write out a cheque.

This method has been gaining popularity among Indian MF investors as it helps in rupee cost averaging and also in investing in a disciplined manner without worrying about volatility and timing the market.

SIPs help investor average his cost over a period of time, fetching more units when prices are low and fewer units when prices are high. In the current scenario, buying at a low prices and selling at higher prices works brilliantly because the volatility means you buy additional units at lesser price, thus improving your ultimate returns.

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First Published on Sep 10, 2019 04:26 pm
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