Your Money: Make SIP The Basis Of Your Wealth Creation Strategy

Your Money: Make SIP the basis of your wealth creation strategy.

YOU CAN Build up your investment portfolio either through ad-hoc lump-sum deployments, or through disciplined periodic flows. For the majority of investors, it requires discipline to invest regularly, as current expenses may appear overwhelming.

For a perspective, let us look at how significant SIPs have been for the MF industry and how investors have been using disciplined periodic flows as the preferred method. The percentage of folios through SIP increased from 20.7% to 43.6% over the seven years from March 2016 to March 2023. The assets under management (AUM) of the SIP mode as on March 2017 was Rs 1.49 lakh crore, growing to Rs 6.83 lakh crore on March 2023. The share of SIP in overall AUM increased from 8.5% to 17.1% from March 2017 to March 2023. To be noted, overall AUM includes chunks of investments by large corporates, which are lump-sum.

Over the last three years or so, there has seen a remarkable increase in the number of demat accounts opened in India. Typically, the new demat accounts are opened by millennials / young people who have recently started earning. They would be mostly investing in equity stocks and mutual funds. Most of them have not been through market cycles and being young / not guided by a professional advisor, may not have the patience to stick around for the long haul.

In 2021-22, net fresh inflow via the SIP route, i.e. gross inflows net of redemptions, was 19.3% of fresh inflow in the industry. In 2022-23, till February 2023, net inflow through SIP was almost 80% of the fresh inflows, which is remarkable. The other contributor to this was lump-sum outflows in 2022-23. The equity market, at least the indices, did not do much. Returns from debt funds were muted. This underscores the importance of the discipline imparted by SIP.

Mutual funds are the route through which retail investors participate in equity through a professionally managed vehicle, apart from directly investing in stocks. Within MFs, SIP is the bulwark for consistent inflows. This also provides support to the equity market in times of adverse volatility with that much of purchase support.

Benefits of SIP to you

Discipline: Usually, people take the approach of earnings minus expenses is equal to savings or investments. Ideally, it should be earnings minus investments equals expenses. Apart from your EMIs and household chores and essentials, you have to inculcate that discipline. It is here that SIP helps. Conceptually, the SIP amount becomes like an EMI, the difference being it is an investment rather than an expense.

Cost averaging: For the same commitment per month (or any other frequency you may prefer), you end up buying effectively more when the price levels in the market are low, and vice versa. This helps in achieving a lower average acquisition price than when making lump-sum purchases.

Flexibility: Mutual fund industry is operationally easy and flexible for the end-user, i.e., the investor. Your commitment to an SIP can be increased, decreased, changed in composition, etc. You can withdraw, if required, from the funds you are investing in.

SIPs have been a pillar for the MF industry, and are increasing in significance. For an increasing number of investors, it is becoming the preferred method of investing over ad-hoc. If you are on the sidelines, it will be beneficial to adopt this route. You can either do it yourself or go through an intermediary. It works for equity as well as debt funds.

Disciplined investing

* SIP helps get a lower average acquisition price than when making lump sum purchases

* Works both for equity and debt mutual funds

* Ensures that the investor sticks around even when the markets are down


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