Learn With ETMarkets: Can retail SIPs replace FII flows as India’s market backbone?

The consistent rise in SIP inflows is more than just a reflection of growing retail participation. It is increasingly becoming a crucial source of liquidity, helping markets absorb shocks and remain resilient — even in periods of global uncertainty. In this article, we explore how rising SIP inflows are shaping market dynamics and contributing to long-term stability.

Record SIP Inflows Reflect Strengthening Retail Engagement

In June 2025, SIP inflows reached an all-time high of Rs 27,269 crore, up 2% from Rs 26,688 crore in May — marking the first time inflows have crossed the Rs 27,000 crore mark. The SIP Assets Under Management (AUM) also rose to Rs 15.30 lakh crore from Rs 14.61 lakh crore during the same period.

The number of SIP accounts touched a record 8.64 crore in June, up from 8.56 crore in May. New registrations also continued to rise, with 61.91 lakh SIPs initiated in June — compared to 59.14 lakh in May and 46.01 lakh in April.

Overall retail participation saw a significant uptick. Mutual fund folios under equity, hybrid, and solution-oriented schemes stood at 19.07 crore in June, compared to 18.84 crore in May. Retail AUM under these categories rose to Rs 4.43 lakh crore from Rs 4.22 lakh crore over the same period.

DIIs Gain Influence Amid Global Pullbacks

The first half of 2025 marked a notable divergence in investment flows. Domestic Institutional Investors (DIIs) infused Rs 3.44 lakh crore into Indian equities — the highest since 2017 — while Foreign Institutional Investors (FIIs) withdrew Rs 82,389 crore.Despite global headwinds, the Nifty delivered positive returns of approximately 5.5% in H1 2025. Most sectoral indices posted gains, with defence and financial services leading the charge. This resilience highlights the growing strength of domestic capital in cushioning external volatility.Further, DII ownership in Nifty200 companies rose to 17.4% as of March 2025 — the highest level since June 2021. In contrast, FII ownership declined to 17.35%, its lowest since June 2020. This gradual shift underscores the rising influence of domestic investors in shaping India’s market trajectory.

A key driver of this transformation has been the surge in SIP inflows, which provide a steady channel of capital to DIIs, helping counterbalance FII-led volatility.

How SIP Inflows Contribute to Market Stability

SIP inflows bring several structural benefits that enhance market stability:

Steady Capital Inflows: SIPs ensure a predictable monthly stream of funds into equities, reducing volatility caused by abrupt institutional movements.

Reinforced Investor Confidence: Rising participation reflects growing trust in India’s long-term economic prospects, promoting patient capital over speculative trading.

Reduced Dependence on Foreign Capital: Domestic inflows offer a buffer against FII outflows during global uncertainty, mitigating sharp market declines.

Improved Liquidity: Consistent buying interest enhances overall market liquidity and supports more efficient price discovery.

Long-Term Orientation: SIPs promote goal-based, long-horizon investing, making funds less prone to panic exits during short-term corrections.

Broader Participation: Millions of retail investors now engage with equity markets via SIPs, reducing concentration risk and making the market more resilient.

Resilience During Uncertainty: Despite significant FII outflows in H1 2025, strong domestic flows ensured the market remained on stable footing.

SIP Stoppage Ratio – A Metric Worth Watching

While inflows remain strong, the SIP stoppage ratio — a measure of the number of SIPs discontinued relative to new registrations — rose to 77.77% in June 2025, up from 72.12% in May and 58.68% in June 2024. April 2025 saw a sharp spike in the ratio to 297%, as 136.99 lakh SIPs were discontinued compared to 46.01 lakh new registrations.

Throughout Q1CY25, the stoppage ratio consistently remained above 100%. Though this may seem concerning, not all SIP closures point to negative sentiment. Many investors complete predefined SIP tenures or switch schemes as part of strategic rebalancing.

Still, in CY25 alone, nearly 112 lakh net SIPs were closed. Nomura reports that January saw a net negative of 5 lakh SIPs, while February, March, and April witnessed net closures of 10 lakh, 11 lakh, and nearly 116 lakh respectively.

Monitoring this ratio remains important in assessing evolving investor behaviour and sentiment.

Looking Ahead

Systematic Investment Plans have evolved from being a retail savings tool to becoming a vital structural support for Indian capital markets. Their steady inflows provide a counterweight to global uncertainty, improving resilience and liquidity while expanding retail ownership.

That said, while SIPs bring consistency, they are not immune to behavioural shifts. Extended underperformance or macroeconomic shocks could still influence inflow patterns and investor decisions.

Nonetheless, with growing financial awareness, digital accessibility, and policy encouragement, SIP adoption is expected to remain strong — reinforcing the role of domestic capital in driving India’s equity markets toward long-term stability and self-reliance.(The author is Vice President of Research, TejiMandi)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)