Regular inflows through SIPs have been encouraging the mutual fund industry to grow more and bring more relevant products for the investors, aligning with their financial goals and risk profiles
N S Venkatesh
Investing is a very personal activity, and involves one’s preferences and emotions. Wealth creation is associated with aspirations and financial goals. Involvement of emotions has often resulted in irrational investor behaviour– investing when markets are high and redeeming when markets are low, exactly the opposite of what’s rational.
But over the years, Indian retail investors have clearly made a shift in their investing attitudes and behaviour. As per RBI data, the share of currency and deposits holding in Indian households reduced from 55 percent in FY16 to 51 percent in FY18. And in fact, the share of equity in the pie of Indian household savings increased from 3 percent in FY16 to 8 percent in FY18.
Moreover, our retail investors seem to have found their preferred investment route in the form of Systematic Investment Plans (SIPs). With 2.74 crore mutual fund SIP accounts, investors have been investing around Rs 8,000 crore per month in mutual funds through SIPs during the last nine months.
The data from Association of Mutual Funds in India (AMFI) shows that the industry has added, on an average, 9.32 lakh SIP accounts each month during the first three months of FY 2019-20, with an average SIP size of about Rs 3,000 per SIP account.
The recent volatility in the capital markets may have caused the monthly inflows into the equity markets to be bumpy, but the SIP inflows have continued to remain steady at higher levels.
This investment spree through SIPs despite intermittent bouts of volatility in the market, suggests not only the confidence of investors in mutual funds but is also reflective of their matured behaviour.
In today’s fast-paced era, ease and convenience of investing matters the most and that is why SIPs have been able to capture the mindshare of new age investors. SIPs help investors to walk the journey of financial freedom with consistent savings and invest in the markets in a disciplined manner.
This investment route offers an automated approach to investing in the markets irrespective of the market trends, while at the same time, also allowing the flexibility in terms of mutual fund scheme, asset class, periodicity and amount.
All things said, eliminating emotional bias in investment decisions is important when it comes to SIP, too. During the times of correction, investors often get distracted from their long-term vision for the mutual fund investments and may also opt to discontinue their SIPs.
What if an investor gets nervous due to market fall and thinks about stopping the SIPs too? It is, therefore, desirable to link SIP with a financial goal so that there is always an incentive to continue investing, overlooking short-term volatility.
Such goal-based investing helps individuals to resist the temptation to redeem the investments unless the financial goal has been achieved. Negative returns in the near term and actually ending up booking the losses can be highly discouraging, but the key to successful investing continues to stay invested and stay committed towards your financial goals.
The shift away from physical assets
As India experiences a tectonic shift from savings in physical assets to financial assets, the mutual fund penetration in India continues to be at low levels when compared with such industries in the developed world. Given such low penetration, the mutual fund industry carries the immense potential for its growth and evolution.
Regular inflows through SIPs have been encouraging the mutual fund industry to grow more and bring more relevant products for the investors, aligning with their financial goals and risk profiles.
More importantly, the role of mutual funds continues to be crucial in helping the investors to create wealth, provided that they commit themselves with the investments for the long term.(The writer is Chief Executive Officer, AMFI)Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.