SIP investments have been on a remarkable upswing in India. Will India’s SIP investment trend persist in the face of uncertainty?
In India, Systematic Investment Plans (SIPs) are becoming increasingly popular. SIPs offer a well-organised and disciplined way to invest in the stock market, mutual funds, and various financial instruments. What’s interesting is that investors are also showing a more mature attitude when it comes to dealing with market ups and downs.
In this article, we will dig into why SIPs are on the rise, explore their pros and cons, and try to predict whether India’s interest in SIPs will keep growing in the future.
What’s Happening?
Let’s start with understanding what SIP is. A Systematic Investment Plan (SIP) is a way to save and grow your money gradually. Instead of putting in a big chunk of money all at once, you invest small amounts on a regular basis.
In September 2023, according to data from the Association of Mutual Funds in India (AMFI), there were 36.77 lakh new SIP registrations. The month before, in August 2023, there were 35.92 lakh new SIPs. By the end of September, the industry was managing a total of 7.13 crore SIP accounts.
In September 2023, the BSE Sensex reached a record high of 67,927, and the Nifty hit the 20,000-point mark. This played a big role in boosting the inflow of SIPs into the mutual fund industry. It reached an all-time high of Rs 16,749 crore.
SIP investments have been growing rapidly this year. In August 2023, SIPs contributed Rs 15,814 crore, while in August 2022, that number was Rs 12,693 crore. These figures clearly show that SIPs are becoming increasingly popular in India.
Reason Behind Increasing Number of SIPs
In India, the involvement of everyday investors in the stock market has been growing quickly over the past three years, starting from 2020. Many investors have opened demat accounts, which allow them to buy and hold stocks. According to the Economic Times, the rise in SIP (Systematic Investment Plan) investments shows investors’ confidence in the market’s stability. It appears that retail investors are using SIPs to align with the market’s trends.
However, it is important to note that a significant portion of these new investors hasn’t experienced a major market downturn since May 2020.
This graph shows the SIP growth trend along with the Sensex growth trend.
Fund managers and financial advisors have observed a positive change in investors’ attitudes towards market volatility. Investors are becoming more mature in perceiving market ups and downs, seeing them as a natural part of the investment journey. This shift in perspective is encouraging because it can help investors make more informed and balanced decisions.
Moreover, initiatives like ‘Mutual Fund Sahi Hai’ and ‘Jan Nivesh,’ launched by the Association of Mutual Funds in India (AMFI) and various industry participants, have played a significant role in creating enthusiasm for mutual funds.
Advantages and Disadvantages of SIP Investment
SIPs (Systematic Investment Plans) operate using a method called rupee cost averaging. This means that when you invest through SIP, you can spread your investments over time without worrying about trying to time the market. It is a smart way to invest because it allows you to put in small, regular amounts, which evens out the cost of your investments over the long term.
SIP gives you the flexibility to decide how much you want to invest, how often, and at what time. For example, according to Motilal Oswal Asset Management, you can start an SIP in India with as little as Rs 500 per month. Plus, investing through SIP is also cost-effective.
However, SIPs are not immune to market fluctuations. Rupee cost averaging helps reduce risk, yet the value of investments may decline during a recession. Whereas SIP investors hand over their money to fund managers, who make investment decisions on their behalf. The lack of control over individual stock selection may not be ideal for those who prefer a hands-on approach.
What’s Next?
Even though the market experienced a decline in October, market analysts, as reported by the Economic Times, have a positive outlook for SIP investments. They believe emerging trends will continue to drive SIP growth despite facing various challenges.
One of the most significant factors boosting the growth of SIPs is the flexibility of the Indian economy. India is positioned to outperform many other major countries, and it has ambitious goals to become a US$10 trillion economy by 2035, with an expected growth rate of 8% to 10%. This offers a lot of potential for building wealth in the stock market.
Additionally, increasing financial awareness and advancements in technology are other crucial factors that contribute to the positive outlook for SIPs in India.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
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