scorecardresearchThis is why SIPs are recommended for mutual fund investors

This is why SIPs are recommended for mutual fund investors

Updated: 16 Aug 2022, 09:26 AM IST

The monthly contribution to mutual funds via SIPs declined to 12,140 crore in July from 12,276 crore in the previous month. Regardless, systematic investment plan is seen as a convenient and effective way to invest in mutual funds. Read further to know more on this

Despite the fall in total SIP contributions, investment advisors feel that this would change soon. 

Despite the fall in total SIP contributions, investment advisors feel that this would change soon. 

When total SIP contribution declines in a month or two, does it imply that investors are gradually getting disenchanted with this mode of investment?

 Sample this: Monthly contribution of SIPs rose from 11,863 crore in April to 12,286 crore in May. Following this, it declined in the past two months. In June, the SIP contribution fell to 12,276 crore, which further declined to 12,140 crore in July.

However, total assets under management (AUM) rose marginally from 5.51 lakh crore to 6.09 lakh crore in July.

Despite the fall in SIP contributions, investment advisors feel that this would change soon. They believe that one-or-two-month fall should not be seen as a trend reversal but a mere blip.

Rupee cost averaging

Amid volatile markets, if the market corrects further from the current level, one can derive rupee-cost averaging benefits from SIPs (systematic investment plan). And it invariably takes care of the volatility as more fund units are added during the phase of correction. And when it begins to rise again, this strategy could help you improve your wealth.

“Those who invest in mutual funds without the help of a distributor or advisor can get carried away by the international news such as US inflation, Ukraine war etc, and they end up discontinuing their SIP when they panic. But going by the past experience, these people will enter again when the market does well,” said Ankur Kapur, Founder of Plutus Capital.

“Another reason for the fall in SIP contribution could be that July was tax payment month and some investors tend to pause their SIP contribution,” he said.

Some wealth advisors believe that SIP can be an effective way to sail through market volatility.

“Volatility is the very nature of the equity market; it is important to note that the market may not always be quick to bounce back after a correction. Therefore, the best way to sail through market volatility is to invest in a SIP,” said Vivek Goel, Co-founder and Joint Managing Director, Tailwind Financial Services in this article he wrote for MintGenie.

Preeti Zende, SEBI-registered investment advisor and Founder of Apna Dhan Financial Services, too, is a strong advocate of SIPs.

She said that running SIPs for 20 years calls for discipline and long-term vision, which help achieve long term financial goals.

“Investing in mutual funds through SIP for a long term is a gateway to wealth creation. Staying invested for long helps accumulate wealth by compounding factor. You may not see this compounding magic every year just as in fixed income or traditional debt products because mutual fund returns vary from year to year. So, your SIP investment should not be dependent on market movement,” said Zende.

She further adds that one can not be wealthy just in one year of investing and hence one must have perseverance. “Creating wealth through SIP needs patience. One has to be focussed in long-term investing, keep track of investments, control emotions, stick to the asset allocation and make necessary changes in selected mutual funds if required,” she said.

We elaborate on the magic of compounding in mutual fund SIPs.
First Published: 16 Aug 2022, 09:26 AM IST