SIP and dip: Is the dream run over for systematic investment plans?
They have been fast moving, but unlike consumer products, they work best over the long term
Illustration: Sameer Pawar
Janya Menghrajani Desai, 30, was interning with a financial planner in July 2017 when she learnt about Systematic Investment Plans (SIPs) and, considering her risk-averse nature, decided it would be a good way to put money aside as well as ensure it grows. “I’m not someone who takes the risk of investing in stocks directly, so when the planner told me about SIPs, I said why not,” says Desai.
In the past 20 months she has put in ₹1 lakh but made exactly ₹520 on it. “It’s not even 1 percent,” she says, adding that if she had even left it in her savings account, she would at least have made 4 percent. She plans to wait and watch for a few months after the elections in May and then, if the situation doesn’t improve, pull the money out.
Inflows into mutual funds through SIPs, which let individuals invest in the markets with a steady fixed amount rather than a lump sum, thus averaging out the volatility and therefore the risk, have been steadily growing since 2014. From ₹1,200 crore in June 2014, SIP inflows have grown almost eight-fold to ₹8,094.82 in February 2019. But, as with any market downturn, investors seem to be wondering if they made the right call. And though the inflows continue to grow, the pace of growth has slowed to 0.5 percent per month from around 5 percent last year.
The Wave
Though SIPs as an investment tool have been around for many years, total equity inflows grew and peaked in September 2017 on the back of demonetisation and a push by the industry to popularise mutual funds.
“The industry started promoting SIP as a way of investing in mutual funds [MFs] as a concept. And since 2014, and when the Association of Mutual Funds in India [AMFI] started spending on the ‘Mutual Fund Sahi Hai’ campaign, on the SIP way of investing, we have gained momentum,” says A Balasubramanian, chief executive officer, Aditya Birla Sun Life AMC.
The perception of MFs itself changed from being “for the high-end investors to mutual funds being for one and all,” says NS Venkatesh, chief executive, AMFI.
Awareness programmes by MFs and digital media, too, have played a part. “Awareness creation was extremely high and the number of activities the industry has undertaken in educating people, both through TV and print ads, have helped SIPs grow in size,” adds Balasubramanian.
As with any product, consistent communication seems to have made SIPs top-of-the-mind. “It’s all a combination of a good concept, good consistent communication, there was money put behind that communication, and then there was a big wave that supported the MF industry. All this together has come around to create this momentum for SIP. It’s just like any other household product,” says Nilesh Shah, MD, Kotak Mahindra AMC.
It helps that the performance of other assets has been sluggish. “The second part,” says Rohit Shah, founder and CEO of Getting You Rich, “is also that in a way many investors are forced to look at financial assets like mutual funds because physical assets have not performed as expected. Real estate has been sluggish, gold is a challenge, or assets like fixed deposits [FDs] are reducing interest rates drastically from 8.5 to 9 percent to less than 7 percent. So even senior citizens are forced to look up and try and learn this asset.”
The Stagnation
Except that this household product, a financial product, is not as easy as buying soap. While starting an SIP may be a simple three-four-clicks process, MFs are slightly more complex.
“Suppose you are a customer and I am the financial planner and you say I want to invest money. So I would explain to you the concept of asset allocation, then we would come to assets like equity, then we would come to an instrument to ride the growth of equity. Then we would talk about active/passive. Then we would talk about fund manager. Then we would talk about alpha, then about cost-expense ratio, direct plans, regular plans. I think you will simply just prefer to walk down across the road and go to the branch and do the FD,” says Rohit Shah.
In the current volatile market scenario, when several MFs have been giving negative one-year returns, he adds that everybody has a complaint, especially those who got into SIPs or MFs in the last two years. “The complaint that ‘my investments have not done well and should I stop them’ means we don’t understand how this product works. Right now maybe it’s because of the fear of missing out that everybody is doing it, everybody is talking about SIPs, but very few people take the pain to get educated,” he says.
As in any volatile market, the knee-jerk reaction is to cut your losses and pull out, or stop the SIPs through the volatile period, some of the factors that have led to the stagnation of inflows. “What we are seeing is nothing different from what we saw during 2000 or 2008. If investors don’t see returns many of them stop their SIPs,” says Nilesh Shah of Kotak, adding that the SIP closure is far higher among people who invest directly compared to those who invest via distributors. “The distributor community is handholding customers and trying to convince them to continue,” he says.
According to fund managers, people invariably end up exiting at the wrong time. When SIP returns are negative, people should invest in markets and continue their SIPs, but fear takes over and pushes investors to stop or cancel their SIPs. And though investors have matured through investment cycles, there is always a new set of investors that panics.
(This story appears in the 29 March, 2019 issue of Forbes India. To visit our Archives, click here.)
