Your Money: Make SIP the cornerstone of your wealth-building plan.

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EITHER irregular recurring payments or sporadic lump-sum investments CAN BE USED TO BOOST YOUR INVESTMENT POCKET. Regular investing needs discipline for the majority of investors because their current expenses could seem excessive.

Let’s consider SIPs’ importance for the MF sector and how investors have been favoring disciplined monthly flows as a means to put things in perspective. Over the course of seven years, from March 2016 to March 2023, the percentage of folios through SIP increased from 20.7% to 43.6%. AUM for the SIP mode was Rs. 1.49 lakh crore as of March 2017, and it is expected to reach Rs. 6.83 lakh crore by March 2023. SIP’s percentage of total AUM grew from March 2017 to March 2023, going from 8.5% to 17.1%. It should be noted that the total AUM includes lump-sum investments made in huge amounts by multinational corporations.

The number of demat accounts opened in India has significantly increased during the past three years or so. New demat accounts are typically opened by millennials or young people who have just begun to earn money. They would mostly invest in mutual funds and equity stocks. Because they are young and/or are not being advised by a professional advisor, the majority of them have not experienced market cycles and may not have the patience to hang around for the long haul.

Net fresh intake via the SIP method, or gross inflows less redemptions, made up 19.3% of the industry’s fresh inflow in 2021–22. A significant net inflow through SIP represented over 80% of the fresh inflows in 2022–2023 up until February 2023. Lump-sum outflows in 2022–2023 were another factor in this. The equities market performed poorly, at least according to the indices. Debt fund returns were modest. This demonstrates how crucial the discipline taught by SIP is.

In addition to investing directly in equities, mutual funds offer retail investors a way to engage in the equity market through a professionally managed vehicle. SIP serves as MFs’ main source of steady inflows. With that much purchase support, it also supports the share market during periods of unfavorable volatility.

advantages of SIP for you

Discipline: Most people adopt the mentality that their savings or investments are equal to their income less their outgoings. In a perfect world, income less investments would equal expenses. You need to instill that discipline in addition to your EMIs, household duties, and necessities. SIP is useful in this situation. The SIP amount conceptually resembles an EMI, with the exception that it is an investment rather than an expense.

Cost averaging: You end up effectively buying more when the price levels in the market are low, and vice versa, for the same commitment per month (or any other frequency you may want). By doing this, it is possible to acquire assets for less money on average than when paying all at once.

Flexibility: For the end-user, the investor, the mutual fund industry is easy to use and versatile. You can alter the size, scope, composition, etc. of your SIP commitment. If necessary, you can withdraw money from the funds you are investing in.

SIPs have supported the MF sector and are becoming more important. It is quickly replacing ad-hoc investing as the method of choice for a growing number of investors. The decision to take this path will be advantageous if you are a spectator. Either you can do it yourself or you can use a middleman. Both equity and debt funds can use it.

Conscious investment

  • SIP lowers the average acquisition price in comparison to lump-sum purchases.
  • Applies to both debt and equity mutual funds
  • Ensures that the client remains invested despite negative market conditions

The author is also a corporate trainer.

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