Net fresh inflows into mutual funds reached new highs of Rs 3.55 Lakh Crore for the Financial Year 2021-22. It was Rs 2.8 Lakh Crore for FY 2020-21, and the massive jump in FY22 was due to bullish equity markets and record collections through NFOs (New Fund Offers). Actively-managed mutual fund schemes saw inflows of Rs 2.31 Lakh Crore in FY22 against 2.15 Lakh Crore in FY21 as investors continued their systematic investment plans (SIPs) in a volatile stock market. Moreover, SIPs inflows alone accounted for Rs 1.25 Lakh Crore or 35% of the overall mutual fund scheme inflow in FY22.
Passive Funds find traction with investors
Passive funds are fast gaining favour among mutual fund investors in India. According to Morningstar data, passive funds registered an 88% jump in inflows at a massive Rs 1.23 Lakh Crore. Many investors showed interest in new index-based Exchange Traded Funds (ETFs) launched by Asset Management Companies (AMCs).
One of the main reasons for the massive inflow into passive funds was the increase in passive NFOs launched by AMCs. SEBI, the capital market regulator, seeks to increase liquidity and transparency in the passive fund industry in India. Moreover, mature markets like the US see more investors focused on passive funds against active funds.
SBI Mutual Fund saw a massive inflow of Rs 84,608 crore in FY22 against Rs 70,089 crore in FY21. It was due to the highest-ever inflows in a couple of New Fund Offers. Axis Mutual Fund followed a distant second, recording inflows of Rs 41,893 crore based on solid performances of some of their mutual fund schemes.
Why do Indian investors prefer SIPs?
Many Indian investors prefer systematic investment plans to handle market volatility. Mutual Funds offer the SIP facility where investors put in fixed amounts regularly in mutual fund schemes, especially equity funds.
One can get more units of the equity fund when the stock markets are down and lesser units when the markets rise. It helps average the price of equity fund units over time, called Rupee Cost Averaging.
The SIP approach encourages investors to spend time in the stock market rather than attempt to time the markets. The Power of Compounding Benefit helps one maximise returns from equity funds over time. It is the return on your returns from equity mutual funds.
One must start the SIP in equity funds as early as possible and stay with the investment for the long run to reap the power of compounding benefits. Moreover, do not stop SIPs when the stock markets have crashed. Otherwise, you will lose the opportunity of investing in equity funds at lower stock market levels.
Indian investors in the equity market have matured and are not overly afraid of stock market volatility. For instance, retail investors have absorbed part of the shock from the FPI sell-off of $36 billion since October 2021. In a nutshell, Indian investors prefer sticking with their SIPs even in a volatile stock market.
For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in
I write to make complicated financial topics, simple. Writing is my passion and I believe if you find the right words, it’s simple.
