SIPS going strong despite declining lump-sum flows

Equity-oriented mutual fund (MF) schemes logged their seventh straight month of outflows in January. Since July, over ~42,200 crore has flown out of the equity segment — a more profitable category than debt.

Though these figures paint a grim picture, the ~30trillion MF industry is seeing more traction in systematic investment plans (SIPS) — where an investor commits to invest a fixed sum every month, instead of making a lump sum payment.

In January, the industry registered over 1.6 million SIPS, 58 per cent more than the average of the previous nine months. Even if one looks at net additions, over 1.5 million new accounts were registered between November and December, spurred by the rally in the stock market, which has led to improvement in scheme performance.

“The markets have been hitting new highs and MF returns are positive after a long time. We are seeing SIPS of over ~7,500 crore every month. Over 90 per cent of this money goes to equity schemes,” says S Venkatesh, chief executive officer, Association of Mutual Funds in India (Amfi).

From last year’s lows, many stocks and the benchmark Sensex have almost doubled. This prompted many investors to book profits on their lump sum investments. However, a positive outlook and hopes of economic revival are encouraging many to continue with SIPS. Those who have missed out on the rally are opting for SIPS, instead of making lump sum investments at current levels, say experts.

Anthony Heredia, CEO of Baroda Asset Management, believes the SIP book has remained stable as returns are boosting investor confidence.

Data from Value Research shows that, on an average, large-cap funds have delivered returns of 24 per cent in the last one year, while midcap and small-cap funds have delivered returns of 27 per cent and 31 per cent, respectively.

“Investors have understood that, given the volatility we have seen in the first few months of 2020 in markets, it becomes difficult from a practical standpoint for lump-sum investments. But, if investors would have continued with their SIPS, they would be happy with the performance,” says Heredia.