Reaping benefits of SIP in a market rally: Mutual Funds

Reaping benefits of SIP in a market rally: Mutual Funds

At a time when stock markets are meeting new highs and investors are booking profits from equity funds, many individual investors are frequently investing in mutual funds via systematic investment plans (SIPs). In December, recovering 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 current SIPs registered nearly folded to 14.22 lakh in December from 7.5 lakh in April last year, according to data from the Association of Mutual Funds in India.

As of December-end, there are 3.47 crore SIP accounts and authorities say the increase in SIP folios is thoughtful of retail investors’ confidence in mutual funds.

Individuals are investing through SIP in big, mid, and small-cap funds and also in certain thematic funds. In fact, overall sectoral/ thematic schemes brought strong inflows of Rs 3,412 crore, which is the highest for the category since April 2019. Even those investors who should put a pause to their SIPs in the last few months due to loss of income have also started to invest through this staggering mode of investing.

While the development in SIP collections in December is a positive sign, equity schemes faced net flows for six months in a row since July last year. In December, the net flows were Rs 10,147 crore, somewhat lower than the previous month’s net flows of Rs 12,917 crore. Despite this, according to a word from Crisil, the open-ended equity fund asset support advanced 6% on-month to settle at a fresh experience high of Rs 9.07 lakh crore, taking on mark-to-market (MTM) increases in the underlying equity asset class as stock benchmarks S&P BSE Sensex and Nifty 50 rallied 8% respectively in December.

In FY20, the mutual fund business collected Rs 1 lakh crore through SIPs, up 8% over Rs 92,700 crore raised in FY19. In FY21 till December, the industry collected Rs 71,347 crore. In the mutual fund enterprise, growth is expected to be led by equity funds, which will advance to garner strong investor interest. A Crisil research notes that common equity AUM is expected to increase at 18% CAGR to Rs 25 trillion by FY25, from Rs 11.1 trillion in March 2020, inspired by strong inflows.

Accumulate through SIPs

Disciplined investing can help a person to expand wealth over a long period of time. To obtain from SIPs over the long term, the investor has to be disciplined to take the power of compounding. In fact, investing during the highs and the lows through a SIP will allow an investor to buy units on a given date each month and not need to beat the market. During market volatility, SIPs average out the price as more units are purchased when a scheme’s NAV is low and some units are bought when NAV is high.

The real benefit of higher amounts of units is seen when the markets recover. As the Nifty-50 has grown by 90% since its March 23 lows, investors are now attending a steady rise in SIP returns for well-performing schemes after a precipitous fall. Experts say investors who had halted investing in SIPs during March and April because of paper loss in their portfolio would dislike the decision now as the market corrections help SIP investors to equalize the costs.

As spending in a SIP is a great way to build wealth, experts recommend a minimum of five years of investment. Losses due to market buoyancy are evened out over a long period of time, granted the fundamentals of the scheme are strong.