India: SIP Inflows Reach Record High as Investor Sentiment Soars

During the pandemic in 2020, many investors shifted from indirect investments via mutual funds to directly participating in the equity market. However, since then, SIP inflows have been on a steady rise, with only a slight dip in early FY22 due to the second wave of COVID-19.

In FY24, average monthly SIP inflows reached INR 16,602 crore, marking a significant 27.7% increase from INR 12,998 crore in FY23 and a substantial rise from INR 10,381 crore in FY22. Each quarter within the fiscal year saw higher inflows than the previous one, culminating in INR 57,296 crore of inflows in the March quarter, up from INR 51,611 crore in the December quarter. This continuous increase has significantly boosted Domestic Mutual Fund (DMF) ownership.

Passive vs. Active Fund Dynamics

While passive investment in DMFs through Exchange Traded Funds (ETFs) and index funds listed on the NSE has grown rapidly, active funds have also seen substantial growth. Over the past eight years, the Assets Under Management (AUM) of passive funds have grown at a compounded annual growth rate (CAGR) of 58.4%, outpacing the 27.5% growth of actively managed mutual funds.

In the most recent quarter, passive fund holdings increased by 7.4% quarter-on-quarter (QoQ), while active funds saw a slightly higher increase of 7.9% QoQ. Consequently, the share of passive funds in the total DMF portfolio slightly decreased to 19% from 19.1% in December 2023, down from the peak of 20.1% in December 2022. As of March 31, the total AUM of passive mutual funds stood at INR 6.5 lakh crore.

Market Share in NSE Listed Universe

Within the NSE listed universe, DMFs held 8.9%, with passive funds maintaining a steady 1.7% share in the March quarter. Active funds’ ownership increased modestly by 10 basis points (bps) QoQ to 7.2%. In terms of free float market capitalization, passive funds’ ownership edged up to 3.5% from 3.4% in December 2023, while active funds’ share rose to 14.9% from 14.5%.

This upward trend in SIP inflows and the balanced growth between passive and active funds highlight the continued confidence of individual investors in the mutual fund route, ensuring a robust future for DMF ownership.