The mutual fund (MF) industry witnessed a huge surge in retail participation in the month of August, showed the data from the Association of Mutual Funds in India (AMFI). While Systematic Investment Plan (SIP) account registration hit a record 24.9 lakh, the number of registrations in August was nearly 2.5 times the long-term average.
This is the third straight month when new SIP registrations were more than 20 lakh, taking the total tally of SIP accounts to 4.3 crore.
In a conversation with CNBC-TV18, Anup Bansal, Chief Investment Officer at Scripbox said that the index (a measure of the stock market) has given a stellar annual return of 16 percent since 1980. He believes that the Indian growth story is intact and it is beneficial to be in the equity market despite the short-term market movement and levels.
S&P BSE Sensex was at 118 on January 2, 1980, and has now crossed 58,000 with all its ups and downs.
Taking about investing in mutual funds
via SIP, financial experts say that any time is good because fundamentally, existing market levels should not interfere with one's decision to start SIP.
“The SIP mechanism helps one to implement the adage - Save First, Spend Later - while avoiding the pitfall of trying to time the market and there is rupee cost averaging of the acquired units with market movements,” Bansal said.
As long as an investor has a long-term horizon, he added that it is highly probable that the SIP portfolio will have sustainable above-inflation returns.
“Data shows that if investors have invested in the S&P BSE Sensex through SIP for one year any time since 1980 and held the investment for more than five years, they would have crossed the threshold return of eight percent more than 80 percent of the times,” Bansal said while talking to CNBC-TV18.
The below table on SIP performance in different market cycles shows that it is always advantageous to be invested in the market with a long term horizon:
|SIP start date||SIP amount||Amount invested||SIP return (%)||Bulk Investment Return*(Investment on the SIP Start Date) (%)|
|01-Jan-09||Rs 10,000||Rs 15,20,000||13.16||14.64|
|01-Oct-09||Rs 10,000||Rs 14,30,000||13.06||10.73|
|01-Jan-14||Rs 10,000||Rs 9,20,000||14.98||13.93|
All returns as of August 31, 2021
While elaborating further, Adhil Shetty, CEO, BankBazaar said that SIP helps in investing in a disciplined manner without worrying about market volatility and timing the market.
“SIPs are a gateway to wealth creation due to their modularity, flexibility, and ease of use. Investing under SIP prevents investors from worrying over the price of the stock or the mutual funds. When the prices come down, the fixed amount can buy more of the units and when the prices go up, this adds to capital gains,” Shetty said while speaking to CNBC-TV18.
What essentially happens here is that since individuals invest a fixed amount every month, they end up buying more units of investment assets when the prices are low and less when the prices are high. The cost of an investment asset is averaged over the long term. Since markets tend to move upward in the longer run, this strategy works for small investors.
Shetty further said that investors should identify a few strong funds and invest a part of their investment in them.
“The presence of different companies and assets in the portfolio of mutual fund makes it better prepared to handle the stock market’s fluctuation. Moreover, mutual funds offer a plethora of choices and ease of investment. Once individuals invest, they should have the patience to ride through the rough and tumble of the stock markets,” Shetty said.
To conclude, investors should neither try to time the market nor worry about the market levels to start a SIP
. Remember, fundamentally any time is good to start it until the horizon is long.
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