Rs 1.48 lakh cr and counting in 2022! Why should investors stick to SIP this year?

The Indian equity mutual funds attracted net flows of 1.61 lakh crore in 2022. Out of the Rs 1.61 lakh crore, Rs 1.48 lakh crore came through SIPs.

While hybrid and debt funds registered a negative flow of Rs 5,590 crore and 2.20 lakh crore, respectively, it is evident that SIP is the preferred vehicle to participate in equities through mutual funds.

SIP is the most efficient way to invest for beginners in the market for less risk and steady returns.

SIP the trusted route for retail investors
The monthly SIP book, which was Rs 11,305 crore in December 2021, has risen to Rs 13,573 crore in December 2022. More than 2 crore new SIPs got registered during this period, the spectacular rally in the equity market post-March 2020 till October 2021, coupled with meager FD rates, caused the TINA factor (There Is No Alternative), which resulted in investors’ savings flowing to equity mutual funds.

Also, post-then, large cap and mid-small cap indices delivered muted and negative returns, respectively. Also, rising FD rates in the recent past may divert some flows toward traditional instruments in the current year.

Pre-covid in January 2020, fixed income was 45% of industry AUM while Equity and Hybrid were 28% and 13%, respectively.

While as of January 2023, fixed income share remained at 44%, Equity AUM is now 54% (91% jump in equity AUM from pre-Covid level), and Hybrid is at 18% of total MF AUM.

The data suggest that within the MF industry, there is a significant shift towards equity as an asset class in a span of just 3 years. This indicates some asset rebalancing may happen in the current year.

Considering all market and industry dynamics, SIP may remain the preferred way of investing. We may witness positive flows to hybrid and fixed income MFs considering rational return expectations by investors on aggregate basis.

Moreover, as in January 2023, within equity, Flexicap is the biggest category, followed by large cap and midcap in terms of their AUM. Again, within the hybrid, Balanced advantage is the biggest category followed by the Balanced/Aggressive hybrid category.

Need to create awareness
Better awareness has helped the industry get higher flows to equities. Further, better investor experience and understanding of the benefit of long-term investing may help sustain flows in the year 2023.

In addition, more retail interest and participation would result in higher flows to equity and hybrid. However, the performance of various asset classes will decide which category will attract higher flows in the current calendar year.

The markets and industry may witness some consolidation this year in terms of fresh flows, which may result in a skewed allocation towards the performers within each category.

SIP your way to prosperity
Retail investors are advised to take the SIP route to invest and take exposure to equity. SIP in active MFs is the most cost-efficient way to invest.

A professional fund manager must take an effort to choose the stocks to invest in, and rebalance the portfolio at regular intervals.

Beginners are advised to invest in SIPs, and also increase the amount of SIP year on year as the discretionary and investable capacity increases.

(The author is Co-Head - Products, WhiteOak Capital AMC)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)