Industry celebrates milestone as retail investors embrace equity through systematic plans
Monthly SIP inflows crossed Rs 10,000 crore for the first time ever. July 2021 recorded inflows of Rs 10,351 crore through systematic plans. The industry has been building toward this milestone for years.
Just five years ago, monthly SIP inflows were around Rs 4,000 crore. The journey from Rs 4,000 crore to Rs 10,000 crore shows accelerating momentum. More Indians are discovering the power of disciplined investing monthly.
The number of active SIP accounts now stands at 4.25 crore. That’s up from 1.8 crore accounts just three years ago. Growth has been absolutely explosive across this period of transformation.
What’s driving growth
Technology platforms made SIP investing ridiculously simple for new investors. The entire process happens on smartphones within minutes of deciding. Gone are the days of visiting offices and filling forms.
Financial influencers on social media are spreading SIP awareness rapidly. YouTube and Instagram content creators explain concepts in simple language. Young people discover investing through these influencers increasingly nowadays.
COVID lockdowns forced people to think about financial security more seriously. Job losses and salary cuts scared many into building safety nets. SIPs emerged as the preferred vehicle for this among salaried.
The stock market’s strong performance since April 2020 validated SIP investing. People who continued SIPs through the crash made spectacular returns. Success stories spread through word of mouth powerfully.
Who’s investing via SIPs
Young professionals in their 20s and 30s dominate new SIP accounts. First-time earners are starting SIPs with their very first salaries. Financial literacy is significantly better among this generation compared to parents.
Tier 2 and tier 3 cities contribute 60% of new SIP registrations. Mumbai and Bangalore no longer dominate as they once did. Smaller cities across India are discovering mutual funds systematically.
Women’s participation in SIPs has increased to 25% of all accounts. Still lower than ideal, but improving steadily from previous years. Financial independence is becoming a priority for more working women.
Average SIP amount has remained stable at around Rs 2,400 monthly. This shows that small investors drive the growth predominantly. Retail investors, not HNIs, are the backbone of SIP success.
Which funds benefit most
Large-cap equity funds receive the maximum SIP inflows currently understandably. New investors prefer the perceived safety of blue-chip companies initially. They graduate to mid-caps and small-caps later with experience.
Flexicap and multicap funds are also major beneficiaries of SIP flows. Investors like the flexibility these funds offer fund managers to adapt. No rigid market cap constraints appeal to many systematically.
Sectoral and thematic funds see lumpy SIP flows depending on trends. Technology funds saw huge SIP interest during the pandemic period. Now pharma and manufacturing funds are attracting attention proportionally.
ELSS tax-saver funds get SIP boost during January-March quarterly period. Tax-saving season drives flows into these three-year lock-in schemes. Many investors continue SIPs beyond initial tax-saving goal achievement.
Banks vs fintechs
Traditional banks still command significant market share in SIP registrations. Their distribution reach across India remains unmatched by anyone else. Branch networks in small towns drive rural and semi-urban growth.
But fintech platforms are growing much faster in terms of velocity. Apps like Groww, ET Money, and Paytm Money simplified investing completely. They’re acquiring young urban investors at breakneck speed currently.
Fund houses are caught between these two channels increasingly. Banks demand high distributor commissions for their reach advantages. Fintechs push for direct plans with zero commissions aggressively.
The direct vs regular plan debate intensifies as SIP volumes grow. Fund houses earn less from direct plans but acquire stickier investors. Regular plans via distributors provide higher revenues but create dependencies.
Stop rates remain concerning
Despite celebratory headlines, SIP stop rates remain disappointingly high still. Around 55-60% of SIPs get discontinued within three years of starting. This defeats the entire purpose of systematic long-term investing.
Investors stop SIPs during market corrections most frequently and unfortunately. Exactly when they should be continuing to buy cheap units. Behavioral challenges persist despite growing financial literacy levels.
Small SIP amounts show higher discontinuation rates than larger ones. Rs 500-1,000 monthly SIPs get stopped more frequently than Rs 5,000+ SIPs. Lower commitment levels explain this pattern partially clearly.
Fund houses are trying various tactics to improve SIP persistence rates. Reminder emails, educational content, and personalized communication help somewhat marginally. But market volatility remains the biggest persistence killer.
SIP penetration still low
Despite hitting Rs 10,000 crore monthly, SIP penetration remains very low. Only 4.25 crore SIP accounts exist across 140 crore population. That’s just 3% of Indians investing via SIPs currently.
Compare this to credit card penetration of around 6 crore cards. More Indians have credit cards than SIP accounts surprisingly. The opportunity for further growth appears absolutely massive here.
Household savings worth Rs 35 lakh crore sit in bank deposits. Even if 10% moved to SIPs, monthly inflows would quintuple. The potential pipeline of money into SIPs is genuinely enormous.
