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SIP inflows have been great, but are investors choosing the right funds?

Three equity-oriented categories saw the maximum net inflows. These were the ones in which new fund offers were on

September 16, 2021 / 10:25 AM IST

Investors poured Rs 9,923 crore in mutual funds via systematic investment plans (SIPs) in August. So, monthly SIPs are within a striking distance of Rs 10,000 crore. Five years ago, this figure was around Rs 3,500 crore.

Experts often ask investors to take the SIP route to investing. It’s automated, brings discipline, and generates wealth over the long run. But dig a little deeper, and three important trends come up from the monthly inflows. These trends suggest that perhaps investors aren’t making the best choices.

Retail investors flock in

The first five months of the financial year have seen a four-fold expansion with 78 lakh retail folios getting added, as opposed to 18 lakh folios in the same period in FY21. Not just that, August 2021 saw the highest ever SIP registrations in a month, at 24.92 lakhs.

Household savings moving to mutual funds is a healthy sign. Market-linked portfolios are essential for creating wealth. The question is: Are investors investing in the right funds?


Following the trend

The inflows of July and August show that three equity-oriented categories saw the maximum net inflows. These were the ones in which new fund offers were on. Focused, sector and thematic, and Flexicap funds were the categories. There were net outflows from five other equity categories and minimal inflows in the remaining three. That is bad news.

The retail investor who is new to mutual funds is perhaps going to the hottest new fund on offer rather than investing in established schemes with a performance record. Starting your mutual fund journey with a new untested scheme, as opposed to those that come with 5-10 year track records, is not the right way to invest.

This is also underlined by the large inflows into the NFO of SBI Balanced Advantage Fund. It may be argued that new investors are better off deploying money in relatively less risky funds in the present markets. It would result in automatic asset allocation, but may not be a logical path for everyone. For instance, a 25-year-old investor may have the risk appetite for a pure equity fund. Somebody approaching retirement would have a conservative approach and prefer a BAF, instead.

Your own risk-return profile should make you decide the scheme for your needs.

Rising adoption of ETFs

At a net flow of Rs 11,591 crore in August, the passive fund category is second only to hybrid schemes segment that got a boost, thanks to the large BAF NFO. This comes on the back of net inflows of slightly over Rs 10,000 crore for the category in July 2021.

Given that 15 out of the 32 draft NFO filings in August are for passive funds, it’s clear that investor interest is shifting at a fast pace to this category. Mutual fund houses are coming up with innovative solutions, the ETF portfolio of blockchain companies, for example. Passive fund solutions also abound in the debt funds space.

How should you pick the right mutual fund scheme?

The August 2021 AMFI data shows that there’s a dichotomy of investor behaviour out there. One set continues to tread on the path of least resistance and simply buys what it is sold and the other is demanding new-age solutions according to investors’ risk-return matrix.

Unless a new scheme offers you something new, there is no pressing need to invest in it. It’s always safer to invest in schemes that come with a track record and good pedigree.
Lisa Barbora is a freelance writer. Views are personal.
first published: Sep 16, 2021 10:25 am

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