Mutual funds stay strong in SIP game as lump sum flows dwindle since July

Equity-oriented mutual fund (MF) schemes in January had their seventh straight of outflows. Since July, over Rs 42,200 crore has flown out of the equity segment, which is a more profitable compared to debt.

The outflows seem worrying, but the Rs 30-trillion MF industry is getting stronger when it comes to systematic investment plans (SIPs), where an investor commits to invest a fixed sum every month instead of making a lump sum investment.

The industry in January registered over 1.6 million SIPs, 58 per cent more than the previous nine-month average. Even if one looks at net additions, over 1.5 million accounts have got added between November and December.

The sharp uptick in new registration is underpinned by the rally in the stock market, which has led to improvement in scheme performance.

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

From last year’s lows, the benchmark Sensex has almost doubled. This has prompted a lot of investors to book profits on their lump sum investments. However, positive outlook and hopes of revival in the economy is also encouraging many to continue with their 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 at Baroda Asset Management, said the SIP book has remained stable as SIP returns is boosting investor confidence.

Data from Value Research showed that on an average large-cap funds have delivered returns of 24 per cent in the last one year, while midcap and smallcap 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 invetsors would have continued with their SIPs, they would be happy with the performance,” says Heredia.