Equity euphoria triggered 15 million SIP additions in 2023

Mutual funds (MFs) added systematic investment plan (SIP) accounts at a record pace in 2023 with the net additions in the calendar year surpassing 15 million — 24 per cent higher than the 2022 tally of 12.2 million, according to data from the Association of Mutual Funds in India (Amfi).

MF officials and distributors attribute the surge in SIPs to the elevated returns of equity schemes amid a continued rally in stock prices.

The benchmark Sensex and the Nifty50 ended the year with gains of 18.7 per cent and 20 per cent, respectively, while the midcap and smallcap indices registered over double the gains.

"MFs have been seeing a surge in adoption in recent years and with the market getting into a bull run in 2023, the interest has spiked up further," said Mohit Gang, CEO of Moneyfront.

"With the kind of returns that equities and MFs have delivered in recent years, many new investors are getting into MFs with the feeling of being left out," he added.

Sundeep Sikka, CEO of Nippon India MF, said SIPs are emerging as the preferred medium for MF investment.

"New investors across India are choosing SIPs to enter MFs.

"A fourth of our investors are first-time SIP investors.

"This shows a commitment to disciplined, long-term investing," he said.

The market impact was also seen in the direct equity space.

Investors opened 4.2 million new demat accounts in December, which is the highest addition in a month.

The impact of market performance on SIP account openings is also evident from the monthly SIP data.

The gross new account openings were 55 per cent higher in the second half of 2023 at 21.2 million than in the first half, which saw 13.7 million.

SIPs have emerged as a key driver for the MF industry with the inflows through the SIP route going up almost every month in the last two years.

Monthly SIP inflows, which stood at Rs 4,100 crore in January 2017, swelled to Rs 17,600 crore in December 2023.

Growth in SIP flows has been consistent since 2021.

The pace of SIP account closure, however, outpaced the growth in new SIP account openings in 2023.

While the gross account additions surged 36 per cent in 2023 to 34.9 million, the number of accounts that were closed jumped 47 per cent to 19.7 million from 13.4 million in 2023.

As a result, the SIP stoppage ratio, which shows SIP account closures as a percentage of new account additions, went up in 2023 to 0.57 from 0.53 in 2022.

Going by the folio data, most of the new SIP accounts are likely in smallcap and midcap funds.

Smallcap funds have added a net of 6.8 million folios in 2023.

In comparison, the additions in largecap funds stood at only 0.3 million.

Smallcap funds along with midcap and thematic schemes also attracted the bulk of the flows last year.

“In 2023, the top five equity inflow categories garnered close to 85 per cent of Rs 1.62 trillion inflows.

"The contributors were smallcap (25 per cent), sectoral/thematic (19 per cent), midcap (14 per cent), multicap (12 per cent), and large & midcap (12 per cent).

"Conversely, largecap and focused schemes faced net outflows of Rs 3,000 crore and Rs 2,700 crore, respectively,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.