At a time when stock markets are touching new highs and investors are booking profits from equity funds, many individual investors are increasingly investing in mutual funds via systematic investment plans (SIPs). In December, collections from SIPs touched Rs 8,418 crore, the highest for a month since April when it was Rs 8,376. Collection through SIPs dropped to Rs 7,300 crore in November last year. Even the number of new SIPs registered nearly doubled to 14.22 lakh in December from 7.5 lakh in April last year, according to data from Association of Mutual Funds in India.
As on December-end, there are 3.47 crore SIP accounts and experts say increase in SIP folios is reflective of retail investors’ confidence in mutual funds.
Individuals are investing through SIP in large, mid and small cap funds and also in certain thematic funds. In fact, overall sectoral/ thematic schemes attracted strong inflows of Rs 3,412 crore, which is the highest for the category since April 2019. Even those investors who had put a pause to their SIPs in the last few months due to loss of income have also started to invest through this staggered mode of investing.
While the increase in SIP collections in December is a positive sign, equity schemes faced net outflows for six months in a row since July last year. In December, the net outflows were Rs 10,147 crore, slightly lower than the previous month’s net outflows of Rs 12,917 crore. Despite this, according to a note from Crisil, the open-ended equity fund asset base advanced 6% on-month to settle at a fresh record high of Rs 9.07 lakh crore, riding on mark-to-market (MTM) gains in the underlying equity asset class as stock benchmarks S&P BSE Sensex and Nifty 50 rallied 8% each in December.
In FY20, the mutual fund industry collected Rs 1 lakh crore through SIPs, up 8% over Rs 92,700 crore collected in FY19. In FY21 till December, the industry collected Rs 71,347 crore. In the mutual fund industry, growth is expected to be led by equity funds, which will continue to garner strong investor interest. A Crisil research notes that average equity AUM is expected to increase at 18% CAGR to Rs 25 trillion by FY25, from Rs 11.1 trillion in March 2020, driven by strong inflows.
Accumulate through SIPs
Disciplined investing can help an individual to accumulate wealth over a long period of time. To gain from SIPs over the long term, the investor has to be disciplined to take the advantage of compounding. In fact, investing during the highs and the lows through an SIP will enable an investor to buy units on a given date each month and not need to time the market. During market volatility, SIPs average out the cost as more units are purchased when a scheme’s NAV is low and fewer units are bought when NAV is high.
The real benefit of higher numbers of units are seen when the markets recover. As the Nifty-50 has risen by 90% since its March 23 lows, investors are now seeing a steady rise in SIP returns for well-performing schemes after a steep fall. Experts say investors who had stopped investing in SIPs during March and April because of paper loss in their portfolio would regret the decision now as the market corrections help SIP investors to average the costs.
As investing in a SIP is a great way to build wealth, experts suggest a minimum of five years of investment. Losses due to market volatility are evened out over a long-period of time, provided the fundamentals of the scheme are strong.