Bull effect: 1.51 crore net SIP accounts added in 2023

About 425 years after William Shakespeare wrote “There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune”, Indians seem to be rediscovering its hidden wisdom in the context of the mutual fund (MF) industry. The MF industry added a net number of 1.5 crore Systematic Investment Plan (SIP) accounts between January and December 2023, which is a good 24% higher than that recorded in 2022, revealed data of the Association of Mutual Punds in India (Amfi).

Predictably, executives and distributors associated with the MF space directly attribute the spectacular rise to the high returns generated by the equity markets.

During the calendar year, Sensex and the Nifty 50 indices recorded growth of 18.7% and 20% respectively. Incidentally, these impressive gains appear just a fraction against those recorded by the smallcap and midcap indices.

Accordingly, most of the new folios created last year were in the mid and smallcap funds.
Incidentally, the annual SIP additions have witnessed a surge since 2018. The net SIP additions are 0.66 crore (2018), 0.44 crore (2019), 0.49 crore (2020), 1.44 crore (2021), 1.22 crore (2022) and 1.51 crore (2023).
Experts are unanimous in their opinion. “MPs have been seeing a surge in adoption in recent years and with the market getting into a bull run in 2021, the interest has spiked up further. With the kind of returns that equities and MPs have delivered in recent years, many new investors are getting into MFs with the feeling of being left out,” Moneyfront CEO Mohit Gang told the Business Standard.

“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,” said Sundeep Sikka, CEO of Nippon India MF.
Gross new SIP account openings were 55% higher in the second half of 2023 at 2.12 crore million than in the first half when 1.37 crore were opened.

A large number of investors also dived headlong into direct purchase of equity. In December 2023 alone, as many as 0.42 crore people opened new demat accounts. It is a record for any month.

Over the past two years, the amount that flowed into the market through the SIP route kept on rising consistently. The amount rose from Rs 14,100 crore in January 2017 to Rs 17,600 crore in December 2023.
However, a large number of SIPs were closed too. While the gross SIP account additions rose by 36% in 2023 to touch 3.49 crore, the number of closures leaped 47% to reach 1.97 crore.

The direct outcome was a rise in the SIP stoppage ratio that measures SIP closures as a percentage of new account addition. SIP stoppage ratio was 0.53 in 2022. It rose to 0.57 in 2023.

Smallcap funds added a net of 0.68 crore folios in 2023. In contrast, the number of large cap fund folios stood at only 0.3 crore.

Most of the investment was attracted by the small and midcap funds along with the thematic funds.
“In 2023, the top five equity inflow categories garnered close to 85% of Rs 1.62 trillion inflows. The contributors were smallcap (25%), sectoral/thematic (19%), midcap (14%), multicap (12%) and large and midcap (12%). Conversely largecap and focussed schemes faced net outflows of Rs 3,000 crore and Rs 2,700 crore, respectively,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.