New Investors SIP Their Way in to Mutual Funds

New investors are pouring money into mutual funds through systematic investment plans (SIPs). The SIP route of investment is the favourite tool for the first time mutual fund investors. The assets under management (AUM) of mutual funds connected to the SIP plans touched a four-year high of Rs 3.4 lakh crore in August 2020. The Indian Mutual Funds now have 3.31 crore SIP accounts, with Rs 7,792 crore entering mutual funds in August. Why are so many investors entering mutual funds through SIPs?

The systematic investment plan is an easy way of investing in mutual funds. You invest a fixed amount at predetermined intervals in a mutual fund scheme, instead of a lump sum investment. You can put in a minimum amount of just Rs 100 per instalment through the SIP route. 

The portion of the assets under management through SIPs to the total AUM has gone up to 12.2% in August 2020. It is around 250 basis points above the four-year average of 9.5%. The SIP assets under management have gone up by 40% as compared to a 23% increase in the total mutual fund AUM from March 2020. The data points to the rise in confidence of the new investor with systematic investment plans. 

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SIP brings a disciplined approach to investing, where you don’t have to time the markets. You get the benefit of the rupee cost averaging where you invest a fixed amount of money at regular intervals of time. You get a higher number of units when prices are low and lesser units when prices are high. If you invest a fixed amount regularly in a mutual fund scheme through SIP, it averages out the cost of your investments over time. 

The assets under management through SIP increased by 6.1% on a year-to-date basis as of August 2020. The fresh inflow of funds and capital appreciation has contributed to the rise in the assets under management. However, growth was on the lower side, even as total assets under management grew by 3.5% over the same period. 

The new investors continue to SIP into mutual funds but at a slower pace. The average value of the SIP portfolio touched Rs 1,01,677 for August 2020. It is the highest for the last eight months. The gains stood at 32% from March 2020 but were 4.5% lower as compared to Rs 1,06,917 in January 2020. 

The mutual fund industry is facing a few hiccups with the reduced monthly SIP inflow of Rs 7,792 crore for August 2020. It was the lowest as compared to the last two years. The data shows the cumulative inflow from SIP accounts at Rs 40,039 crore for the first five months of the current fiscal year. It was Rs 1,00,084 crore for the same period of the previous year. Moreover, the month of August saw the termination of a record 7.6 lakh accounts.

Invest in mutual funds through SIPs for the long-term if you want to accumulate wealth. It allows you to reap the benefits of compounding, which is earning a return on your returns. The power of compounding can grow a small investment into a large amount of money. However, you must start the SIP as soon as possible and invest for the long-run to accumulate a sizeable corpus. 

New investors have jumped on the SIP bandwagon but must continue with their investment. Experts have recommended that you carry on with SIPs for the long-term to achieve your financial goals. However, you must invest in mutual funds based on your time horizon and risk appetite. In a nutshell, choose the right mutual fund based on your investment objectives and continue with SIPs until you achieve your financial goals.

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in