Investment in Mutual Funds SIP: The equity as an asset class is inherently volatile in nature and so far in 2019, the stock market has struck to its true colours. However, going by the Association of Mutual Funds in India (AMFI) data, that did not deter the retail mutual fund investors to stay away from SIPs. The AMFI MF SIP data shows that the MF industry had added, on an average, 9.24 lakh SIP accounts each month during the FY 2019-20, with an average SIP size of about Rs 2,900 per SIP account. In fact, the Mutual Fund SIPs accounts stand at nearly 2.84 crore and the total amount collected through SIP during September 2019 has been about Rs 8,263 crore. SIP in mutual funds means a systematic investment plan.
A report compiled by AMFI and CRISIL jointly puts out the key trends in the MF industry. According to the report – "Between April 2016 and June 2019, the SIP route has helped rake in a whopping Rs 2.3 trillion. That is nearly 19 per cent of the increase of approximately Rs 11.9 trillion in assets under management (AUM) of the industry."
The report also suggests that there has been a surge in investment in mutual funds SIP accounts which is almost 3x growth in the number of SIP accounts to 27.3 million from 10 million over this period.
The table below shows how the number of SIP accounts increased Vs growth in Nifty 50:
It shows that even after small or big bouts of volatility in Nifty, investors between April 2016 and June 2019, choose to invest through SIPs. The SIP amount also seems to have gone up. While investors pumped in about Rs 439 billion in 2017, the contribution has more than doubled in fiscal 2019 to about Rs 927 billion.
What is most interesting is that the share of contribution from SIPs to the industry's AUM is also rising. From around 8 per cent in August 2016 to 11 per cent in March 2019, and to 12 per cent in June 2019, SIP’s share in total AUM is rising steadily.
New investor in MF
Identify long term goals and start SIP in 1-3 diversified equity MF schemes after looking at their consistent long term performance against their benchmark. Only a small portion can go into mid-small cap depending on your risk profile. The core of your MF portfolio can be large-cap or index funds.
Existing SIP investors
No matter if the market is at a high or not, if your goal is at least seven years away, keep the SIP running. SIPs are suited for long term investing as it helps in keeping the average cost of owning the MF units lower.
For all SIP investor
"Only invest money that you will not be forced to pull out to meet emergencies and give SIPs enough time to show the benefit of rupee costs averaging," says Nilesh Shetty-Associate Fund Manager- Equity, Quantum Mutual Fund. SIP mode of investing also helps to bring in financial discipline in the investor. At times, when markets are down or when the economic conditions appear gloomy, several investors look to exit early. "A lot of investors try to time SIPs based on market movements, i.e pulling out when they think markets are expensive and adding when they think markets are cheap which defeats the entire purpose of sips. Try a simple approach of not touching our sips over many years," informs Shetty. Review the performance after at least three years. Run them till about three years away from your goal. Thereafter, start the de-risking process to move funds out of equity MF to less volatile liquid funds.