SIPs Resilient But Low-Yielding Fixed Income May Pressure Fund Houses

While net equity flows into mutual funds have moderated from peak levels, Citi notes that SIP resilience remains encouraging, providing stability. However, concerns about lump sum redemptions and potential revenue pressure for AMCs due to declining equity-oriented assets under management are highlighted.

While, Nuvama says that despite the overall slowdown, both HNIs and retail investors viewed market volatility and declines as buying opportunities, reinforcing their continued preference for small and mid-cap schemes.

Citi's picks in India's asset management companies are 360 One, Nuvama and Prudent. While Aditya Birla Sun Life AMC Ltd's growth trajectory is higher than expected, the shift towards low-yielding fixed income funds including liquid funds could pressure yields, according to Citi.

Though there was a month-over-month decline, the inflows into the industry remain higher than historical averages. Back calculations suggest net equity flows for large equity schemes until March 11, 2025, were approximately 40% to 50% of February 2025 levels.

Moving on, the inflows into actively managed equity schemes for asset managers decreased by 2.6% in the two months quarter-to-date, according to Citi.

Specifically, HDFC AMC saw a decrease of 2.5%, Aditya Birla Sun Life AMC saw a decrease of 4.9%, and UTI AMC witnessed a decrease of 3.3%. The brokerage expects revenue pressure for AMCs in the fourth quarter of 2025.

Small and mid-cap flows moderated but flows remain higher than inflow since February 2023.

With attractive valuations in large-cap stocks, inflows into these schemes have shown some recovery, Nuvama noted. Fund managers continue to emphasise the importance of diversification beyond SMID stocks, said the brokerage.

The decline in gross SIP flows was marginal, at 1.5%. Despite market fluctuations, retail and high net worth individuals participation in equity markets through SIPs remains robust, according to Citi.

This resilience provides higher visibility on AUM growth. However, the possibility of lump sum redemptions in the near term, if equity markets continue to slide, cannot be ruled out, said the brokerage.

Mutual fund SIP registrations increased by 4% in January 2025 while there was a 21% slip in February 2025. Case in point, Angel One, one of the largest originators of SIPs by volume, reported 12% month-on-month decline, in unique new MF SIPs registered.

The ticket size of SIPs decreased by approximately 1.2% in February 2025 from December 2024 peaks, according to analysts. This suggests a possible increase in stoppages from high-ticket SIPs.