Mutual fund SIP contributions spike 52% in a year. Why are investors opting for them?

When it comes to investing in mutual funds, most retail investors prefer SIPs as a convenient and rational option to go for. No wonder then the inflows into systematic investment plans (SIPs) have been defying gravity for too long. Their volume has been going higher and higher, and is in no mood to subside any time soon.

In Sep 2024, SIP inflows touched an all-time high of ₹24,509 crore. This was 52.78 percent higher than the corresponding data of 2023 which stood at ₹16,042 crore. Now, there are a total of 9.87 crore mutual fund SIP accounts across India, reveals the latest AMFI (Association of Mutual Funds in India) data.

Last month, the number of new SIPs registered in Sept alone was 66,38,857, which took the total SIP AUM to ₹13,81,704 crore.

For the uninitiated, SIP is an investment methodology to invest in mutual funds wherein one could invest a fixed amount in a scheme at fixed intervals, say once a month rather than investing lump-sum. The SIP amount could be as small as ₹500 a month. This is similar to a recurring deposit where you deposit a small amount every month.

(Source: AMFI; *Increase over Sept 2020 data of ₹7,788 crore)

Interestingly, SIPs have become so popular that the capital markets regulator Sebi is now contemplating introducing micro SIPs of ₹250 a month to widen the net of SIPs. In fact, LIC MF managing director recently announced to scale down the minimum limit of daily SIPs to ₹100 from the current ₹300.

What are the advantages of investing via SIPs?

The popularity of SIPs in mutual fund investment is not completely misplaced. There are a number of substantive reasons for them. These are some of the key reasons for the popularity of SIPs:

1. Rupee cost averaging: They enable investors to make the most of rupee cost averaging. In other words, you do not need to find the right timing of buying mutual fund units. You happen to invest in a staggered way as a result of which your average purchase price is an average of different prices at which you buy the units across the tenure of SIPs.

For instance, when you buy in six monthly instalments, your buying price is the average price of six different prices at which you bought them during those six months.

2. Investing discipline: Since you are investing in regular gaps, you happen to inculcate an investing discipline. And as you know, investing discipline is key to wealth creation.

3. Ease of investment: As one would imagine, investing via SIP is far more easier and convenient than via lumpsum investing.

4. Flexibility: SIPs offer flexibility of investment in terms of frequency in which one could invest in mutual funds that could be monthly, weekly or quarterly.