Indians have taken to investing through SIPs in a big way with the retail monthly inflows into mutual funds growing manifold over the last three years, as small and retail investors have increasingly discovered a more convenient and relatively safer way to participate in the equity market rally, which has propelled the benchmark indices to rise by 22% so far this year. The total amount collected through the SIP route in June 2017 was as high as Rs 4,744 crores, which shows a growth just shy of two-and-a-half times in over three years, from Rs 1,950 crore collected in April 2014, as per the data available with Association of Mutual Funds in India (AMFI).
Not only this, the number of accounts too, has grown at a similar pace, with money into the mutual funds flowing in from 1.45 crore accounts in June 2017, as compared to 68 lakh SIPs three years ago. In the last financial year 2016-17, a total of Rs. 43,921 crore was collected through the SIP route. Almost 85% of this amount is mandated to go to equity funds, a recent report in The Times of India said quoting AMFI Chairman A Balasubramanian.
What’s propelling the growth in SIP investments? Experts say retail investors have found SIP to be more convenient and relatively safer way of participating in equities. SIPs have been gaining in popularity among the Indian MF investors as it provides the famed “Rupee Cost Averaging” benefit. Further, many small investors find SIP attractive as they could put in monies as low as Rs 500 per month.
AMFI data reveals that the mutual fund industry had added a whopping 7.75 lakh SIP accounts each month on an average during the fiscal first quarter (Apr-Jun) of 2017-18. Encouraged by the higher returns provided by this route, the average SIP size now stands at Rs. 3,300 per SIP account in the first quarter of FY 2017-18. The average ticket size of SIPs for the same period last year was around Rs. 2,200.
The entire idea is based on the premise that investing in a disciplined manner without worrying about the market volatility and timing will yield superior returns. This method provides a convenient way of investing in mutual funds through standing instructions to debit your bank account every month, without the trouble of having to write out a cheque each time.
Since, the amount invested on a monthly basis is fixed, the investors receive lesser number of units when the market has run up, such as the current times. This seems to be in complete sync with the” buy low, sell high philosophy”. As Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.” the SIP route automatically allocates higher number of units in down markets, and vice versa. The SEBI mandate to spend 2 paise from every Rs 100 received towards investor education has also played a vital role in the SIP route gaining traction.