We require more and better data on mutual fund SIP investments

livemint.com:

₹17,073 crore, the highest it has ever been. SIP is a way of investing routinely in MFs, usually monthly, with the money being largely invested into equity MFs, which in turn largely invest in stocks. In buying stocks through the SIP route, the averaging of purchase prices comes into the picture.

When stock prices are high, the net asset value (NAV) of a single unit of an MF is also high. So, the total number of MF units being bought through the SIP route comes down, given that a fixed amount of money is being invested. On the other hand, when stock prices are low, the NAV of a single unit of an MF is also low.

So, the total number of units being bought goes up. This dynamic ensures that investors are able to buy more when prices are low and less when they are high, something that is psychologically difficult to achieve otherwise. It also ensures that as stock prices go up, the overall value of the units bought at a lower NAV also goes up, benefitting the overall investment.

This is how it is supposed to work in theory. But does it? Now, the SIP route can be used to invest in non-equity MFs regularly as well. We don’t have a publicly available breakdown of what proportion of the total SIP investment goes into equity MFs.

Nonetheless, given anecdotal evidence and also how SIPs are sold, it is safe to assume that a bulk of it is going into equity MFs. Further, the question is: Are retail investors benefiting by investing regularly through the SIP route? For that to happen, investors need to stay invested for at least five years or more, so that the dynamic explained above gets to play out properly. From April to November this year, a total of ₹1.24 trillion has come into MFs through the SIP route.