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7SIP Inflows: Why Larger Picture Matters?Dec-31-2020

SIP Inflows: Why Larger Picture Matters?

Blog by – Mr. Dhruv Ajmera

Equity trading have seen a roller coaster ride this year with the global and local benchmarks hitting fresh highs and about to end the year with good gains despite the intense spell of volatility in March-April when the Covid-19 surfaced as a single most threatening factor for world economy and share market investing in modern times. While the local share markets have hit record highs, the individual investors’ behavior has been rather erratic when it comes to the Systematic Investment Plans (SIPs). The mutual funds have been selling in local equities over last few months and FIIs have been buying. In fact, the flows via SIPs have also been impacted by the economic hardships posed by the pandemic.

The Investment in mutual funds through SIPs dropped to a 31-month low of Rs 7302 crore in November amid challenging economic environment. However, investment through the SIPs route had increased in October after six months of continuous drop. The local mutual fund industry witnessed an inflow to the tune of Rs 7302 crore through SIPs in November as compared to Rs 7800 crore in the preceding month, data from the Association of Mutual Funds in India (Amfi) showed. This was the lowest-level since April 2018, when the investment through the path was just Rs 6690 crore.

With the local equities firmly in a bullish zone, the individual investors need to reassess their investment horizons and act accordingly rather than simply following the trends in aggregate SIP flows. In fact, the monthly trend in SIP inflows indicate that investors have been quite consistent in pushing up their financial savings via the SIPs. Volatility in stocks following critical decisions like the demonetization or the implementation of GST did not affect the behavior of retail investors much. Most stock brokers in India normally provide sound wealth management advice that will help investors focus on their long term financial goals and not get swayed by short term trends in equity market trading.

SIPs is likely to be one of the best ways to deal with a hurried correction in markets in coming months as bloated valuations mean that it is advisable to allocate your capital to stocks only in a phased manner hereafter. However, the Reserve Bank Of India (RBI) has recently noted that corporate results for Q2:2020-21 reflect that demand conditions are recovering and profit margins are rising on the back of cost saving on expenses and debt servicing capacity has gone up. Business assessment of manufacturing firms has also entered the expansion zone in Q3:2020-21 after remaining in contraction in the last two quarters. Business expectations going forward into Q4:2020-21 are rising too. This can keep local stocks supported going ahead. 

Conclusion:

There has been an outflow in equity market mutual funds, which mainly depend on SIP for flows over last few months. These funds saw outflow of nearly Rs 13000 crore in November, making it the fifth straight month of withdrawal as investors booked profit amid higher market valuations. However, the number of new SIPs registered are rising sharply after moderating in first quarter of the current fiscal. Currently, mutual funds have over 3.41 crore SIP accounts through which investors regularly invest in Indian mutual fund schemes as compared to 3.12 crore at the end of last fiscal years. 

The attractiveness of SIPs is pretty much in tune with a very focus on financial inclusion. Financial inclusion in the country is poised to grow exponentially with digital savvy millennials joining the workforce, social media blurring the urban-rural divide and technology shaping the policy interventions, RBI noted recently. RBI’s latest estimates showed a spike in household financial savings to 21.4% of the gross domestic product (GDP) in the first quarter of 2020-21, up from 7.9% in Q1 and 10% in the fourth quarter of 2019-20. This sums up the potential of a highly effective and convenient mode of investing like SIP. 

Also Read: Equity Mutual Funds: Why Staying Invested For Long Term Holds Key?

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