SIP Surge: Are conservative FD, PF investors also investing in mutual funds?

by Joseph K. Clark

The surpassing the previous highest figure of Rs 8,641 crore achieved in March 2020, the total money inflow in Mutual Fund (MF) schemes through Systematic Investment Plans (SIPs) has registered a spike in March 2021 to touch the highest-ever level of Rs 9,182 crore. The SIP inflow of Rs 9,182 crore witnessed in March 2021 was robust compared to the total SIP inflow of Rs 7,528 crore in February 2021. Adopting technology for easy onboarding of new customers may also have played some role in the spike.

“Investments in SIP have increased significantly in the last two months. The total SIP investment accounts stood at approximately 3.72 crores as of March 2021. In March, Rs 9182 crores were collected in various SIP schemes,” said S Ravi, former Chairman of Bombay Stock Exchange (BSE) and Founder and Managing Partner, Ravi Rajan & Co.

“SIP is a way of deploying fixed amounts at regular intervals. The investors decide these intervals and are either weekly, monthly, or quarterly,” he added. The investment amount in a SIP can be as low as Rs 500. A systematic investment plan is an investment vehicle that many mutual funds offer.

But what may be the reasons behind such a massive spike of about 22 percent in SIP inflows in March 2021?

“Investment strategies and decisions depend on the economic cycles and phases prevailing when investing. Investing in stocks should be research-based. Investment decisions counter period and stock prices, which are subject to flux,” said Ravi.

mutual funds

“The reason for this increase is due to the diversity of factors like market performance, poor returns in bank fixed deposits (FDs), no TDS (tax deducted at source), etc. The recent budget announcement making Provident Fund (PF) contributions over Rs 2.5 lakh taxable could be another factor. The mid-cap performance, an average yield over 12 percent, has made SIPs very attractive,” explained Ravi.

Apart from the low FD rates and change in PF tax rules pushing the conservative investors towards MF investments through SIP, some also believe that the change in NAV applicability rule may also result in spilling some investment money from February to March.

March Mutual Fund inflow: Did the change in the NAV applicability rule contribute to the spike?

Adopting technology for easy onboarding of new customers may also have played some role in the spike.

“Mutual funds have made the investing process easier. Ravi said, ” electronic clearing by way of banking instructions or investing via an app linked to a bank account and online investments through the web portals” said Ravi.

Moreover, compared to lump sum investments in equity MF schemes, investing through the SIP route is considered less risky as investments are made in up and downmarket cycles, which may have encouraged the conservative investors to take some calculated risks.

“Rupee cost averaging over some time is a good investment vehicle as there is time diversification. However, in bull markets, the value of the investments is at a premium, while in bear markets, investors can accumulate more units at lower data points. Hence market volatility is countered with no fear, and investments over a longer time horizon yield better returns. Investments are tax-efficient and counter inflation,” said Ravi.

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