From Dreamers to Doers: SIPs are Reshaping Investing in India

A year after SEBI was formed, private sector entities started entering the mutual fund industry. In 1993, the first Systematic Investment Plan (SIP) was launched by Kothari Pioneer, now Franklin Templeton. 30 years down the line, SIPs are about to become one of the most preferred investment avenues for the India’s investors.

As per the data released by the Association of Mutual Funds (AMFI) in India, the monthly SIP book has grown at ~2% MoM from Apr-16 to May-24. SIP monthly book for Apr FY 2024-25 was Rs 20,371 crore, which rose to Rs 20,904 in May 2024-25. These figures are an all-time high for monthly SIP inflows.

While it is true that it took more than 3 decades for SIP monthly book to hit the Rs 20,000 crore mark, the next Rs 30,000 crore addition can happen in next 4-5 years. If we were to consider the same growth rate of ~2% MoM, then the milestone of Rs 50,000 crore can be achieved by Jan 2028 and that of Rs 1 lakh crore could be reached by Dec 2030.

India has witnessed significant financialization of savings in the last one decade and retail investors are turning out to be one of the strongest pillars of India’s growth trajectory. Along with expanding the investor base they are also providing a strong foundation for the market. As per the data estimates of Ministry of Statistics and Program Implementation (MoSPI), the household savings pool has decline drastically and there is an increase in loans and investments, especially in mutual funds. This burgeoning of flow of savings into investments is catalyzed by easy, regular and low ticket investments avenues like SIPs.

SIP is an investment tool that allows people to invest with nominal amount – this is the USP of SIPs. It allows small investors with relatively low risk appetite also, to enter the securities market. The average SIP ticket size has gone down from Rs 2,500 in 2016 to Rs 2,341 in Apr-24 which shows more democratic participation thereby allowing an extended investor base to invest in mutual funds using SIP. The lower the SIP ticket, the better its accessibility. Furthermore, since SIPs come with high liquidity, it takes away the fear factor that is usually associated with investment in securities market in terms of capital erosion.

There is this growing understanding of the compounding effect of SIPs. Adding to this effect, is the expanding financial literacy owing to which investors do not get jittery over regular market fluctuations. More and more investors are becoming aware of what exactly risk and uncertainty implies, which is a great trend for the Indian investment landscape. Investing in mutual fund using SIPs also brings in the financial discipline allowing investors to manage their savings, investments and expenses with greater ease.

What is interesting to note is that, despite the ongoing caution by market experts surrounding expensive stock valuations, number of investors availing of SIPs outnumber those discontinuing them. In Feb 2024, the SIP stoppage ratio fell to a 27 month-low, indicating higher retention. This is primarily because of the high mutual funds that we witnessed in the last couple of years.

The easy access to direct mutual funds through SIPs that online platforms can provide, has made it possible to go beyond T-30. The direct plans are garnering more investments from the smaller towns and cities than the T-30s. In the FY 2024, folios in B-30 increased by 52%. All these trends are indicative of the mega cycle of sustainable expansion of SIPs in India.

As market leaders, it is our responsibility to make investments avenues even more easy and accessible to every individual belonging from various economical strata across all tier cities. SIPs are inherently such a kind of investment tool that it comes with a psychological safety as one can start investing in a mutual fund using SIP with an amount as nominal as Rs 500. In absolute terms, this nominal amount can churn out to become the biggest investment avenue given the demographic strength of the country. Technological advancements, financial literacy and penetration of the same will play a major role in sustenance and further acceleration of this trend.