SIP has reached a lot of people due to the ‘Mutual Funds Are Right’ campaign launched in 2017 by AMFI.
Despite the volatility in the Indian stock markets in the year 2019, SIP contribution (inflow) in mutual funds stood at around 8,000 crores every month. The total SIP investment from January to November 2019 was Rs 90,094 crore. SIP AUM record has reached 3.12 lakh crore rupees. This information was revealed in the recent Systematic Investment Plan (SIP) data released by the Association of Mutual Funds in India (AMFI). It is clear from the data of AMFI that a better opportunity for financial advisors to prepare a strong SIP book. is available.
Currently, the industry has around 2.94 crore SIP accounts or folios through which investors regularly invest their savings in several mutual fund schemes, which consist of core equity. The SIP has reached a lot of people due to the ‘Mutual Funds Are Right’ campaign launched by AMFI in 2017.
However, the data also shows that many investors do not continue the SIP. With this, most investors do not have a holding period of more than 2 years. Only 35% of the equity assets have been retained for more than 24 months. Therefore, the role of financial advisors becomes important. Currently some robo-investing platforms are being created, but youngsters (25 years to 35 years old) prefer to seek advice from banks or distributors and invest in paper forms. Data from AMFI shows that retail and high net worth individuals opt for the services of mutual fund distributors.
Cost is incurred on switching
It is generally believed among investors that moving from underperforming schemes to outperforming schemes and making their investment decisions based on market movements increases returns. But this causes a switching cost which affects the return. The movement in the market is likely to affect the performance of the scheme in the short term, so the investor should keep in mind that market volatility is common. Investors should not panic in such a situation.
The importance of staying with SIP also needs to be well explained to investors in times of instability.
Do not stop SIP
Being affected by market movements or stopping SIPs when some good schemes underperform in the short term, the investors endanger their long-term financial goals like buying a home, children’s education, retirement etc.
So always evaluate the scheme, look at the track record in its long term. At a time when interest rates on bank fixed deposits and small savings schemes are falling, mutual funds, especially equity-focused ones, are an attractive investment to create wealth over the long term. If the investor has more risk-taking ability, with this he wants to achieve his target in at least 5 years and wants higher returns, then he should do SIP in diversified.
When the investor wants to achieve his goal in the long term ie 15 to 20 years, then he should increase the SIP. This will help investors to cope with inflation and will be able to achieve their financial goals comfortably.
By: Jimmy Patel, MD & CEO, Quantum AMC