Systematic Investment Plan: Using Small Bait for a Big Catch

Systematic Investment Plan: Using Small Bait for a Big Catch

In August alone, about Rs 7658 crore investments were made through Systematic Investment Plan (SIP) to Equity schemes of mutual funds. It was Rs 7554 crore in August and July. Last year same time, the investments were only Rs 5206 crore.
From April to August of the current financial year, about Rs 36,760 crore investments were made in equity funds via SIPs. Last year, SIP investments were Rs 67,190 crore and more investments are indicated in the current financial year.
Currently, there are about 2.38 crore SIP accounts and approximately Rs 3200 is the average monthly investment amount of an account. The lowest investment amount via SIP on monthly basis is Rs 500. About 10.07 lakh SIP accounts are being opened every month, which means every day almost 34,000 SIPs accounts are opened.
What is the reason behind the considerable investments of investors in share market via systematic investment plan? The changing financial preferences have attracted investors, who were not even ready to hear about share markets, mutual funds, SIPs, etc., to develop an interest in starting an investment.
As no other investment methods provide attractive returns, investors are now in a dilemma of where to invest other than share markets. Investors are aware that the low interest rated fixed deposits in banks give only small returns. There has been a change in the attitude of a category of investors who chose bank investments and small-scale saving schemes due to its low-risk element. Even though there is zero risk, the low returns factor has made investors switch to mutual fund SIPs.
Small-scale investors are hoping that in the coming years the stock market will perform well as past years. Equity mutual funds had given attractive returns in past years. So to continue availing these benefits in future too, investors believe that early investments made in regular and monthly basis are of utmost importance.
Investors, who make investments via SIPs, are attracted towards these kinds of investment methods as they need not worry about the changes in the stock market. The main feature is that the investors, who make investments via SIPs, don’t have to wait for entry points like people who directly invest in equity.
Even though SIP is a mode of investment that can be preferred in any market situations, investors had adjusted their SIP investments according to the earlier fluctuations in the market. Earlier, mutual fund investments were predictable, where investments in equity funds increased according to market rise and investments decreased when market underwent corrections. This was because investors took their investing decisions according to the short-term performance of the market. If 1year or 6-month returns were good enough then investments in equity funds increases, otherwise investments decreases- this was the situation in 2014 & 2016.
But this year investors have a different approach towards market fluctuations. Due to the corrections in a large number of shares the equity returns went down in continuous months. Also, equity funds gave negative returns in some months. For example: As per the statistics of July 20th multi-cap funds faced a drop of 5.18%. However, investments in equity funds via SIP were increased by Rs 7554 crore in July. This year investors continued investing via SIPs and increased the investments every month without considering the fluctuations in the market.
Increasing investments in the equity funds have made large-cap shares expensive. The reason behind the price hike of large-cap funds in past months is due to the continuous investments of mutual funds in such shares. The market value of TCS & Reliance Industries crossed Rs 7 crore (first time ever in history) and these companies are obliged to small-scale investors for this.