SIP investments continue the growth trend consecutively for 3 months. Here’s what you need to know

Date : 11/01/2023
Read: 3 mins

Growth in SIP inflows consistently

When investing in mutual funds, SIPs (Systematic Investment Plans) are favoured by many. With SIPs, you can –

Invest affordably and regularly
Get the benefit of rupee-cost averaging
Enter the market without timing it
Inculcate a savings habit

These reasons make SIPs popular among investors. January is the 16th month when SIP investments are more than Rs.10,000 crores, a run that started in August 2021. In 2022, the aggregate SIP inflow was recorded at Rs.1,49,437 crores, with a jump of 31% compared to 2021. On a monthly basis, the ending months of 2022 saw record-high investments. Have a look –

The increasing inflows are attributed to the benefits of SIPs, and experts believe that despite the recent redemption pressure from Foreign Institutional Investors (FII), the domestic market is confident in SIPs.

The catch

While SIP inflows are breaking all records, experts also pointed out cancellations of existing SIPs by many investors. Experts pointed out that in December 2022, the SIP accounts were reported at approximately 6.12 crores, an increase of 1.22 crores annually. However, the jump is lower than that recorded in the financial year 2021, which was 1.44 crores.

Another expert also mentioned that in December 2022, the new SIP folios added were expected to be approximately 23 lakhs. However, the net addition was recorded at only 7.85 lakhs. This suggests that there were considerable cancellations. The cancellation ratio was calculated to be 66% which is a 25-month high figure and is concerning.

Financial experts are of the opinion that the major challenge for SIPs is redemption pressure. Investors might redeem their investments to book profits or avoid heightened market volatility. If the markets continue to fall consecutively for months, investors might get afraid and redeem or cancel their SIPs. This will affect the overall SIP folios.

The takeaway

While SIP cancellations or redemptions are a concern, investors should learn to be patient with their investments, even in volatile markets. Remember, with time, the market recovers and starts growing. The growth can yield attractive investment returns if you give it time.

So, if you have SIP investments in your portfolio, hold onto them, even when the market is volatile or falling. Stay invested over the long-term horizon to maximize the benefit of SIPs and build a financial corpus for your financial goals.

Here's how the mutual fund industry performed in December 2022

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.