SIPs are similar to a recurring deposit where you deposit a small or fixed amount every month.
Despite all the volatility in the markets, retail investors have kept the faith by sipping on equities through the regular monthly investments in mutual fund schemes. Systematic investment plans (SIPs), amounts that investors commit to equities every month, continued in the period between January-November adding up to Rs 90,094 crore, which is higher than inflows seen in calendar year 2018 which was at Rs 88,667 crore, a growth of 1.6%. Even as net inflows into equity funds have collapsed in November by 78% month-on-month, inflows through SIPs have been over Rs 8,000 crore. Even as flows through SIPs have continued there are some risks which might impact SIP flows in 2020.
In its 2020 Outlook report, Credit Suisse says that the economy has slowed down sharply implying weaker income growth, “Flows into domestic mutual funds have slowed from the peak but are stabilizing at levels higher than seen historically. There are risks: weaker incomes as the economy slows can hurt savings and returns on many SIPs have been disappointing (many have been in small/mid-cap funds; a Nifty SIP would have delivered solid returns but few of these are sold).” If these flows were to reverse then the market’s elevated levels could be at risk, believe some other market experts.
Net inflows into equity schemes of mutual funds plummeted to Rs 1,311.65 crore in November, the lowest levels since June 2016, suggesting some amount of investor fatigue.
Market participants say that with equity markets touching all time high, several investors might have booked profits which have led to redemptions in November. However inflows through SIPs in November stood at all-time high at Rs 8,273 crore, shows the data from Association of Mutual Funds in India (Amfi). In the last three years, there has been a continuous rise. While in CY 2018 net inflow through SIPs was Rs 88,667 crore, in CY 2017 it was 59,482 crore, shows the data from Amfi.
Aashish P Somaiyaa, MD and CEO, Motilal Oswal Asset Management Company, is of the view that mutual funds have been gaining popularity and acceptance and SIPs have become the first option for retail investors to invest in the markets. Apart from that new investors prefer doing digital transactions and MFs is the only financial product that allows paperless transactions ab initio. Also overall experience of SIP investors have been positive over the longer investment horizon, Somaiya added.
Since January this year, Nifty has given returns of close to 12.73%, but this rally has been powered by handful of stocks. The data from Value Research shows that on an average large-cap and mid-cap category have given returns of 11.57% and 3.28% respectively in last one year, while small-cap category is giving negative returns of 1.71% in the last one year.
Systematic investment plans offered by fund houses allow investors to invest a fixed amount in schemes periodically at fixed intervals — instead of making a lump-sum investment. SIPs are similar to a recurring deposit where you deposit a small or fixed amount every month.
Even as overall inflows into the equity schemes slowed-down in the last few months, investors continue to repose faith in SIPs. The data from Association of Mutual Funds in India (Amfi) shows that in the period between January-November equity funds have seen inflows of Rs 71,926.87 crore. While in calendar year 2018, mutual funds had seen inflows of Rs 1.27 lakh crore. Market participants say that slowdown in equity flows is due to the volatility in markets and concentrated rally in equity markets.
Swarup Mohanty, CEO of Mirae Asset Global Investments (India), says, “There has been maturity in investors behaviour as earlier they used to run away from the slow growth period and time the market which never worked. They have learnt the lessons to stay invested for longer duration and get good returns.” He also added that markets are at all-time high, but this rally has been led by top 8-10 stocks and urged investors to stay invested and get benefits of markets when they start growing in the broad manner.