Why you should be part of the mutual fund SIP revolution (2024)

Capitalstars Investment Advisor

The SIP revolution is much bigger than that. SIP investing is changing the psychology of the Indian investor, making them less fickle and more committed. This makes much more sense when the Indian economy is going through the slowdown.

Towards the end of last year, in the editorial for the 2018 anniversary edition of Value Research’s Mutual Fund Insight magazine, I calculated where India’s mutual fund revolution would reach in another 15 years. In 2018 it looked like that if trends continued, then in 15 years, not only would equity fund assets grow to a humongous Rs 320 lakh crore, they would also be about 75% of the total mutual fund investments in India.

Events since then have made me realize that I am probably being too conservative. The SIP revolution is much bigger than that. The reason is that, as I had long hoped for and predicted, SIP investing is changing the psychology of the Indian investor. This is actually its most important effect. This year, as the equity markets stagnated and then rallied hesitantly, one can see a big difference between the behavior of SIP investors and non-SIP investors.

Most importantly, this is not a loose impression gathered from anecdotal evidence, but hard data from the mutual fund industry, released by the Association of Mutual Funds of India (Amfi). For example, in September 2019, net inflows into equity and equity-linked funds fell 28% from Rs 9,152 crore to Rs 6,609 crore. This sounds like bad news but bears with me as we dig deeper and look at the SIP data. It turns out that SIP inflows actually increased from Rs 8,231 crore to Rs 8,263 crore! Here’s what this actually means: non-SIP investors behaved exactly like they used to in earlier times, and have pulled out money trying to time the market and book profits. However, SIP investors are an exception and continue investing in bad times or good. Non-SIP investors in aggregate pulled out money while SIP investors marched on unfazed and actually invested more.

This is a new world of mutual fund investing that we are entering. As I look back to a quarter-century of tracking mutual funds, it’s invigorating to see how far we have come. While I always hoped that Indian investors’ attitudes would evolve in this direction, I have never felt this kind of excitement earlier. That’s because this time, it’s real; this time, it’s actually happening. Most importantly, this is now a self-perpetuating and self-reinforcing phenomenon. As more and more savers experience SIPs, they will have a first-hand experience of the superior returns and peace of mind that real investing brings. In fact, the growth and the steady uphill trajectory of SIP investing demonstrate that this effect is already well on its way.

It’s ironic that some observers of the equity markets are still stuck on the old paradigm of foreign investors. The kind of stable inflows that SIPs are bringing in today is higher in scale than fickle inflows and outflows from punters, whether domestic or imported. While the large mass of the Indian equity markets is still in the grip of here-today-gone-tomorrow investors, in this one corner of SIP investments into equity funds, we have moved on to real investing.

At this point, a lot of gloom and doom are being manufactured about the Indian economy’s slow growth. Don’t pay attention to it. As Bill Gates once said, we always overestimate what we can do in one year and underestimate what we can do in 10 years. Nowhere is that more true in saving and investing. Don’t let the months and even years fool you—it’s the decades that matter.

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