Moneycontrol Pro Panorama | SIPs hold their ground even as caution creeps into equities

In spite of market volatility and investor nervousness that have resulted in the Indian equity market being the worst-performing in the MSCI basket, the SIP flows are steady.

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At first glance, it appears as if retail investors have taken their foot off the accelerator. August monthly data from the Association of Mutual Funds of India (AMFI) show a 22 percent decline in net equity inflows to Rs 33,430 crore when compared with Rs 42,702 crore in July.

But a closer look shows that the retail investor sentiment as reflected in the contributions from systematic investment plans (SIPs) is still solid. In spite of market volatility and investor nervousness that have resulted in the Indian equity market being the worst-performing in the MSCI basket, the SIP flows are steady. August SIPs' record high of Rs 28,300 crore marks a 20 percent rise year-on-year.

A report by Nuvama Research explains that the near doubling of SIP flows over two years reflects rising investor trust and the effectiveness of systematic investing as a behavioural habit. “As SIPs embed deeper into the retail investing psyche, this trend appears not just durable, but foundational to India’s equity inflow story,” it states.

Besides, one must take into account that August also saw a higher number of new fund offers (NFOs) that usually draw retail investors.

However, the data do point to pockets of concern within the market. The fact that investor flows into large-caps and flexi-cap funds rose significantly and had a larger share of net equity flows indicates that investors are shifting to safer bets within the realm of equity investing. This is also mirrored in lower flows into sectoral schemes and small-cap funds, which are marked by greater uncertainty and volatility.

That said, mutual fund distributors reckon that the mood among retail investors is turning cautious, with more questions on macroeconomic stability, geopolitical risks and the impact of India-US tariff tensions on trade and corporate profitability. Indeed, the Nifty 50 returns are near-zero over the past one year.

In comparison, alternative assets such as gold, silver and real estate have delivered stellar returns against the backdrop of uncertainty in the global investment landscape.

That said, a month’s flows cannot signal a reversal of investor sentiment. With the festive season round the corner, expectations of interest rate reduction and the prospect of GST reduction to boost consumption and drive domestic growth, there is adequate potential for market flows to move upwards. The lower monthly flows in August may then be just a moderation in investor sentiment.

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