SIPs become favourite asset class, outsmart lump sum MFs

Mumbai: Systematic investment plans (SIPs),which have more than doubled in recent past, have become the most preferred asset class for a vast majority of retail investors with as many as 76 per cent of them choosing SIPs over lump sum mutual funds.

Last week, the government told lawmakers that the number of SIPs for buying mutual funds has more than doubled to 134 lakh during the past two-and-half years, driven by increased awareness among investors and rising stock markets. Another reason for this is the rising investor appetite for SIPs in non-metros, where the number has more than doubled in the past two years.

The number of SIPs from cities other than the top 15, which have the maximum number of MF and equity investors, has risen from 29.6 lakh in March 2014 to 63.1 lakh as of October 2016, according to the government data.

According to a survey conducted by brokerage firm Geojit BNP Paribas among its 1.4 lakh MF clients, 77 per cent cited capital appreciation as the main objective of investing in SIPs, followed by monthly income plans, tax savers and liquidity.

As many as 65 per cent of respondents said they invest in SIPs for a specific purpose. Out of this, 55 per cent do so keeping retirement benefits in mind, followed by children's education, buying a home, marriage and holidays/travels.

The survey also revealed different investment modes with many investing in multiple instruments. While MFs top the chart with 89 per cent of respondents choosing them as the main investment choice, 74 per cent of them are also into equities, 44 per cent into fixed deposits, insurance, post office savings and corporate bonds. Most of them park as much as 10-12 per cent of their investible funds/savings in SIPs, making this one of the largest asset class.

On the reasons for MF investments, 46 per cent cite diversification of asset class as the main reason, followed by superior returns, and 52 per cent are long term investors. Significantly, only 3 per cent choose to invest for under one year and these investors are risk averse.

But again, consumers have specific choices in their investment plans. For 62 per cent of SIP investors, mid and small cap funds are the preferred choice, followed by multi- cap and large caps.

Close to half the respondents (46 per cent) expect a high 15-20 per cent returns from investments with the average return expectation of 10-15 per cent. SIPs are an investment vehicle that allow people to invest periodically in small amounts instead of lump sums, that can be weekly, monthly or quarterly.

In end-October, SIPs stood at 134.5 lakh, Minister of State for Finance Arjun Ram Meghwal told Lok Sabha last week. The number of SIPs rose from 60 lakh as of March 2014 to 90.2 lakh in March 2015 and further to 116.3 lakh by March 2016.