Lump sum MF investments plunge in October as investors take SIP route

Flows down 64% from peak amid uncertain market conditions, valuation concerns

Lump sum investments in equity and hybrid schemes of mutual funds declined to Rs 17,900 crore in October, the lowest at least since January 2021. The fall in lumpsum investments comes even as flows through the systematic investment plan (SIP) route rose to a new-all-time high of Rs 13,000 crore in October.

The latest lump sum tally is just a third of the peak inflow of Rs 49,700 crore in July 2021. During the past one year, lump sum investments have largely been on a downward trend, shows an analysis done by Motilal Oswal Financial Services.

The volatility in the market and an uncertain global environment has discouraged investors from committing large sums to MF schemes. During the past one year, stock prices have swung wildly, with the benchmark Sensex dropping as much as 17 per cent to 51,360 and bouncing more 20 per cent to almost breach 63,000. The fall in mid-caps and small-caps has been even sharper, with the latter still trading much below record highs.

Top mutual fund distributors say they have been advising their clients to avoid lump sum investment due to geo-political uncertainties, high inflation and expensive valuations.

"We are asking investors to take the systematic transfer plan (STP) route if they have a large amount to invest," said Anand-based MF distributor Nikhil Thakkar.

Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC said a staggered approach is a better investment strategy in the present condition.
 

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"Indian markets have been quite strong and [have been] outperforming global markets, [and] there is a valuation premium to India versus peers. This leads to probable fears of a correction in the short term, so staggering of investments is a better strategy, and therefore we are seeing higher SIP and STP registrations than lump sum flows at this stage," he said.

STP, or systematic transfer plan, is an investment mode in which investors park a large amount in very short-term debt schemes like liquid or ultra-short, and transfer the corpus in small portions to equity schemes. This helps the investor average out the purchase price and saves her from catching a market high.

Under an SIP, an investor invests a fixed sum every month in a mutual fund scheme. A lump sum investment, on the other hand, entails putting in a large sum at one go.

Given the current environment, the mutual fund industry and financial advisors have long been asking investors to take the systematic routes (SIP or STP) to invest in equities. These routes eliminate the need to time the market.

The market has been surging ahead even as the consensus earnings estimates are getting revised downwards. Since April, the Nifty consensus earnings per share (EPS) for FY23 has been cut by six per cent and that for FY24 has been cut by two per cent. Analysts expect further cuts in earnings as the sales growth is expected to remain muted. As a result, the MSCI India is trading at a price-to-earnings multiple of 22 times and 19 times its estimated earnings for FY23 and FY24, respectively—almost double that of MSCI Emerging Market.
 

Experts say investors can increase their lumpsum investments if valuations come down to comfortable levels or look to invest in themes focused on the domestic economy.

“We continue to maintain our neutral view on Indian equities supported by constructive views on Indian macros and improved health of the corporates including banks. We recommend investors to remain prudent in their equity allocation strategy and focus on sectors or companies with high domestic exposures as the global outlook remains unfavorable. We believe any sharp correction could provide a buying opportunity,” said Credit Suisse Wealth Management India in a recent note.