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The ultimate guide to SIP secrets

How effective are SIPs? And how can you make your SIPs truly work? Here are all the compelling findings from an extensive research study we conducted on SIPs

The ultimate guide to SIP secrets

Retail investors, globally, have earned a reputation for always being on the losing side of their investment bets. Instead of buying low and selling high, they are known to avidly chase a rising asset and develop cold feet when it is down in the dumps. However, in a welcome trend, the pattern of inflows into equity mutual funds in the last three years suggests that many Indian retail investors aren't making these mistakes any longer.

Financial year 2016-17 closed with net inflows of Rs 1.07 lakh crore into the equity-oriented fund categories (equity funds, balanced funds and ELSS). This topped off Rs 93,767 crore of net inflows in 2015-16 and Rs 80,855 crore in 2014-15. The stock-market behaviour in these three years was quite varied. 2014-15 saw a strong bull market, with the BSE Sensex soaring by 25 per cent. 2015-16 saw the markets assailed by doubt, with the Sensex losing 10.5 per cent in value. 2016-17 has been a year of revival, with the Sensex gaining 17 per cent, yet retail investors have kept faith with equity-fund flows through all three years.

This change in behaviour owes a lot to the growing popularity of systematic-investment plans (SIPs). SIPs have in fact become a regular habit for over 1.35 crore Indian investors, who, as per the AMFI data for March 2017 are committing over Rs 4,300 crore to equity funds every month. The data also show the industry adding about 6.3 lakh new SIP accounts every month. This means that well over a third of the inflows into equity funds today flood in irrespective of how markets behave.

While this is a revolution no doubt, the queries received by Value Research suggest that investors in SIPs and those still sitting on the fence have several basic doubts about this investment tool. We did not want to address these questions theoretically, talking about concepts such as rupee cost averaging, etc. Instead, we decided to draw upon the real experience of Indian investors with SIPs by conducting an extensive research study that uses data spanning the last 25 years for Indian equity funds. The findings, which address common doubts in the minds of investors, will be presented through a 5-part series (given below) over this week.

The number crunching

Loss-proofing your SIP

Making a double-digit return

Timing wrong? Stretch the SIP

Sip the right fund