Surge in redemptions keeps net systematic investment plan inflows in check

Average net SIP inflows in the first five months FY24 at Rs 6,170 crore, down from Rs 7,000 crore last fiscal

Even as gross systematic investment plan (SIP) inflows continue to scale new highs, the flows on a net basis have remained subdued thus far in 2023-24 (FY24) due to a surge in redemptions, according to mutual fund (MF) industry data.

Redemptions from SIP accounts have consistently risen throughout FY24, reaching Rs 9,750 crore in July. In August, the outflows eased 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 2022-23.

Net SIP inflows are the difference between gross SIP inflows and redemptions from SIP accounts during a particular month.

Higher redemptions from SIP accounts are consistent with the trend observed at the aggregate active equity fund level. Outflows from these schemes reached a 30-month high of Rs 30,400 crore in July. The outflows in FY24 have largely been elevated due to profit booking after a strong run-up in the equity market.

As of the end of August, the benchmark National Stock Exchange Nifty50 had posted gains in each of the past five months starting from March and had risen almost 14 per cent during that period.

“After a challenging period from January to March 2023, Indian stock markets have been on a relentless rise since April, with the broader market outperforming Nifty50 and other front line 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 past 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 into real estate,” said senior MF distributor Nikhil Thakkar.

The past few months have seen simultaneous growth in SIP registrations and discontinuations. While registrations have increased 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 occurred in largecap 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 reveals 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 influenced by a shift in the 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 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, there has been 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.