Systematic Investment Plans (SIPs) have remained a popular wealth-building tool for investors as reflected in the latest AMFI data. SIP inflows crossed the Rs 26,000-crore mark for the first time in December 2024, registering over 50% year-on-year growth.
In the world of investing, starting early is the key as it helps in unlocking the power of compounding. In this article, we will explore how investors in their early 30s are leveraging SIPs, the strategies they employ to allocate investments across various mutual fund categories and the returns achieved since 2021 across different fund types.
Over the past 4 years, benchmark equity indices have surged over 60%. This return could have been even better if the market had not corrected by over 10% in the last nearly 4 months. The recent market slump has impacted mutual funds across categories. Here, the story will focus on how SIP investors in their early 30s managed their portfolios since 2021. We spoke to some young professionals to understand their strategies, portfolio allocations and the returns on their SIPs.
In conversations with these millennials, all under 35 years of age, a consistent pattern emerged. These investors see mutual funds as a reliable tool for financial growth. They are strategically creating portfolios that blend safety and high returns, with a clear preference for largecap funds and calculated exposure to smallcap funds. Here’s a detailed look at their investing strategies and insights.
Also read: Sensex falls over 10%, is it finally time to stop your SIPs?
Investors inclined towards largecap funds
For all these investors, with whom we had discussions, large-cap funds formed the backbone of their portfolios. Allocating 50-60% of their SIP investments to largecap funds, they have on their minds the safety and steady returns these funds offer, even during market volatility.
Ankit Tyagi, 32, an IT professional, said, “Largecap funds give me the assurance that my money is safe, and I know I’ll see decent growth over the long term.” He added that largecap funds are the foundation of his financial plan.
Deepak Gehlot, a marketing professional, echoed a similar sentiment. He said a significant portion of his portfolio is in largecap SIPs because they provide stability and consistent growth.
Balancing risk and reward with smallcap funds
These young professionals also allocate around 20% of their portfolios to smallcap funds for high returns. Smallcap funds, though volatile, are seen as an essential component for long-term wealth creation.
“I’m comfortable taking some risks with smallcap funds because they have the potential to deliver impressive returns over time,” said Sumit Sharma, a media professional. “It’s about balancing safety with ambition,” according to him.
About the returns the smallcap funds in their portfolios have given since January 2021, they said smallcap fund SIPs in their portfolios have delivered returns of 20-30% during this period. However, the recent market correction has tempered these gains.
Flexicap and multicap funds help in portfolio diversification
Another 20-30% of their portfolios are dedicated to flexicap and multicap funds, allowing them to diversify beyond largecap and smallcap funds. These funds offer exposure to companies of varying sizes, providing a balanced risk-reward ratio.
“Flexicap funds let me hedge my bets,” explained Vijoy Shankar Roy, a user research professional. “They’re a great middle ground between stability and growth.”
Also read: Sebi seeks comments on plan for Rs 250 small-ticket SIPs
Staying away from thematic and sectoral funds
Interestingly, none of the four investors we spoke to have ventured into thematic or sectoral funds, citing the complexity and higher risks associated with these options.
“Thematic funds require timing and deep understanding,” said Roy. “I’d rather stick to diversified funds that already have some thematic exposure.”
This cautious approach extends to new fund offers (NFOs), which they avoid due to the lack of track records and perceived redundancy in the market.
SIPs as a wealth-building tool, not a tax-saving instrument
One common theme across all conversations was that SIP investments are driven purely by wealth-building goals, not tax-saving motives. These investors prefer traditional instruments like NPS and PPF for tax-saving purposes, ensuring that their mutual fund choices are guided by potential returns and safety, not deductions under Section 80C.
“Tax-saving is important, but I’ve already maxed out my 80C limit with PPF and insurance,” said IT professional Ankit Tyagi. “When it comes to SIPs, my focus is on long-term returns.”
Evolving strategies and future goals
Roy has taken a unique approach by incorporating multi-asset allocation funds into his portfolio. These funds, which diversify across equities, debt, gold, and REITs, align with his goal of achieving stability while allowing for steady growth.
“Multi-asset allocation funds are a safety net for me,” he said. “They don’t have huge drawdowns, and they fit well into my long-term plans.”
Roy also aims to increase his SIP contributions as his income rises. He sees mutual funds as the cornerstone of his financial future, complementing fixed deposits and other traditional investments.
Returns since 2021: A mixed bag
Despite the recent market correction, these investors have seen commendable returns from their SIP investments. Largecap funds have delivered up to 15% returns, while smallcap funds have yielded 20-30% growth. However, all agree that the correction has impacted what could have been even stronger results.
Markets are unpredictable, but over the long term, SIPs will perform, believe all these young professionals.
Conclusion
For these investors, SIPs are more than just a tool for financial growth. By focusing on a mix of largecap, smallcap, flexicap, and multicap funds, they have crafted portfolios that balance safety and high returns. As they continue to refine their strategies, one thing remains clear – mutual funds are their go-to investment tool when it comes to wealth creation over the long term.