The growth in SIPs is not only about creating wealth for investors but also marks a conducive change for the Indian market and economy, be it financialization of savings, financial inclusion, corporate governance, or investment. The recent trends in the growth of SIPs (Systemic Investment Plans) in mutual funds are highly gratifying and significant. Some key data for July’23 is noteworthy:
1. AUM (Asset Under Management) of SIP has crossed Rs 8.3 lakh crore, a record, with the total SIP account reaching 68 million.
2. The share of SIP AUM in the total mutual fund AUM is 18% (nearly one-fifth). It is again a record.
3. The average portfolio value of the SIP investors is Rs 1.23 lakh per SIP account.
4. The growth in SIP AUM (30%) has outperformed the overall MF industry growth (15%) by a wide margin.
5. Notably, about 90% of the monthly SIP inflows are deployed in equity-focused funds.
The unabated momentum in the SIP product and the overall growth of mutual funds shows the retail investors’ growing maturity level and trust in this asset class. As mutual fund investors know, the big advantage of SIP is that volatility becomes their friend rather than enemy. SIPs, especially equity-focused ones, not only get the best value on downside volatility but also help avoid the risk of worrying about tops and bottoms. The product is efficient in terms of tax treatment as well. So, through this sensible, time-tested investment approach, investors can reasonably expect to gain financial independence and dream of long-term wealth creation.
Yet, the SIP is not only about creating wealth for investors but also marks a momentous change for the Indian market and economy, be it the financialization of household savings, financial inclusion, corporate governance, or investment.
Financialization of savings:
Over decades, Indian investors were obsessed with keeping their savings in idle and unproductive physical assets like silver, , property, etc. This one-dimensional savings pattern was the result of factors like cultural aversion to risk, lack of financial awareness, absence of financial access/alternatives, etc. In this backdrop, SIP’s growth momentum demonstrates the emergence of a new, informed, and healthy investing culture.
The growth trend in the mutual fund industry is a cue to the fast adoption of digital channels of investments especially during and after the pandemic. The impact of proactive measures taken by Sebi and industry body Amfi to make the product more affordable and accessible has also played a sterling role. Not surprisingly, a large part of the surge in the SIP accounts is coming from the hinterlands, which were mostly untapped before COVID-19. Participation of retail investors from villages/tier 2/3 cities in the mutual fund growth story is testimony to the fact that shareholder capitalism is getting broad-based.
Lately, mutual fund managers are becoming increasingly assertive in voting against some of the company resolutions they believe will adversely impact the company and its shareholders. Such resolutions may pertain to related-party transactions, exorbitant pay packages of company officials, objectionable appointments, or misallocation of the company’s funds. Fund managers, empowered by the Stewardship Code earlier introduced by Sebi, are now demanding from their investee companies more fairness, transparency, and accountability, these being vital standards of corporate governance.
According to industry experts, SIPs deployed in equity help offset the redemption pressure from foreign investors. When the monthly SIP inflows are primarily deployed in equity-focused funds, the critical capital needs of companies are met through domestic equity, contributed by the broad local participation of millions of countrymen. Clearly, the wide investor participation aids in buoyancy in the capital market, lessens the market’s susceptibility to foreign investment outflows and helps build the Indian economy’s resilience. This augurs well for Atma Nirbhar Bharat.
Need for support and incentives
Now, for making the SIP and mutual fund growth sustainable, it is important that apart from leveraging awareness, education, intelligent data, and new-age technologies, Asset Management Companies (AMCs) focus on the prevention of mis-selling and high standards of governance. Sebi on its part can lend further support by incentivizing AMCs for performance in efficiency, risk management, and cost-reduction, and rewarding distributors in rural/semi-urban areas. This task is important, and noble, as S.I.P (Systemic Investment Plan) has emerged as a V.I.P (Very Important Product) for India.
The writer is a Board Member in a Mutual Fund Trust