By- Nikhil Kamath, Co-founder, Zerodha
Retail investors in India are scaling investments in mutual funds through the SIP route, with total contributions to the investment plan rising to Rs 67,190 crores in FY2017-18 from Rs 43,921 crores during the preceding fiscal, a robust growth of close to 53 percent. Also, recent updates by AMFI show that contributions to SIP’s in the first two months of the current fiscal have grown by a whopping Rs 13,994 crores, an increase of more than 58 percent from the same period last year.
SIP or Systematic Investment Plan is an investment instrument offered by Mutual Funds where the money is typically invested in equity mutual fund schemes. Individuals generally invest a fixed sum of money at regular intervals: comparable to investing in recurring deposits. Since investments can be as small as Rs 500, it is extremely popular among individual investors when equated to similar instruments that require a much larger outlay.
Investments can be made through cheques or by issuing standing instructions to the asset management company of the mutual fund to directly debit your bank account, making them very convenient to operate. The key features of an SIP are to assist depositors invest in a disciplined manner with Rupee Cost Averaging playing an important role in bringing stability to an investor’s portfolio and doing away with the need to constantly time the markets. In addition, the power of compounding helps in delivering attractive returns over a long-term horizon.
The following chart illustrates the month on month investments in SIP linked mutual fund schemes from January 2016:
According to data published by AMFI, the aggregate number of operational SIP accounts with mutual funds is around 2.29 crores and in the current fiscal, about 9.83 lakh SIP accounts have been opened in June correspondingly with the average account value pegged at Rs 7,554. FundsIndia, one of the country’s largest online platform for mutual fund investments has published the names of some of the top performing SIP fund schemes in 2018.
Following are some of the funds and their corresponding performance:
|SIP Fund||3-year returns||5-year returns|
|SBI BlueChip Fund-Reg(G)||26.25 percent||20.24 percent|
|Birla SL Frontline Equity Fund(G)||23.15 percent||18.16 percent|
|Franklin India Prima Plus Fund(G)||27.17 percent||18.56 percent|
|Mirae Asset India Opportunities Fund-Reg(G)||27.45 percent||19.44 percent|
|BNP Paribas Mid Cap Fund(G)||33.82 percent||24.58 percent|
The recent decision by SEBI to reduce the expense ratio of mutual funds from 20 to 5 basis points is a step in the right direction as it fashions a more rewarding alternative for retail investors. As on June 30th this year, total assets under management (AUM) by the Indian Mutual Fund industry was placed at Rs 22.6 lakh crores, with SIP’s contributing a sizeable portion.
With a large number of retail investors gradually shying away from traditional investments in bank deposits and other low-risk financial instruments to test the riskier equity linked SIP’s, the future outlook for investments in these mutual fund schemes are only going to get much, much bigger, going forward.