SIPs in active equity mutual funds: Are they losing edge?
As the popularity of SIPs or Systematic Investment Plans — a monthly mode of investing in mutual funds — continues to soar with retail investors faithfully pumping money into actively managed equity-oriented schemes at a record pace every month, some market participants are raising doubts about whether this mode of investing in its current form is facing the risk of losing its edge.
While the concept of SIPs broadly implies spreading investments across a period, it has become synonymous with regular equity mutual fund investing thanks to the reliable systems put in place by asset managers and the smart marketing push by the industry. The numbers are evident. In September, mutual funds' SIP monthly book crossed ₹16,000 crore for the first time. This was about ₹3,700 crore in the same month of 2016. In 2020, the monthly SIP flows were around ₹7,800 crore. Retail investors love the simplicity of this investing method partly thanks to increased digitisation. A roaring equities bull market has also fuelled their interest.
Best MF to invest
Looking for the best mutual funds to invest? Here are our recommendations.
View Details»
What is impressing retail investors all the more is various implicit references of at least a 12% return from equity mutual fund investing done through SIPs especially when fixed-income instruments offer 7-9% on average. Though no fund house makes such projections directly due to strict regulatory restrictions, distributor communications often highlight 12-14% annual returns in their hypothetical case studies. Various SIP return calculators offered by online brokers and distributors take 12% returns as the reference point for making projections. This coupled with a recency bias has investors assuming
